Assistant Professor of Finance
Carl H. Lindner College of Business
University of Cincinnati
408 Lindner Hall
Cincinnati, OH 45221
Institutional Affiliation: Princeton University
NBER Working Papers and Publications
|January 2018||Liquidity Regimes and Optimal Dynamic Asset Allocation|
with Pierre Collin-Dufresne, Kent D. Daniel: w24222
We solve a portfolio choice problem when expected returns, volatilities and trading-costs follow a regime-switching model. The optimal policy trades towards an aim portfolio given by a weighted-average of the conditional mean-variance portfolios in all future states. The trading speed is higher in more persistent, riskier and higher-liquidity states. It can be optimal to overweight low Sharpe-ratio assets such as Treasury bonds because they remain liquid even in crisis states. We illustrate our methodology by constructing an optimal US equity market timing portfolio based on an estimated regime-switching model and on trading costs estimated using a large-order institutional trading dataset.
Published: Pierre Collin-Dufresne & Kent Daniel & Mehmet Sağlam, 2019. "Liquidity regimes and optimal dynamic asset allocation," Journal of Financial Economics, .
|October 2013||High Frequency Traders: Taking Advantage of Speed|
with Yacine Aït-Sahalia: w19531
We propose a model of dynamic trading where a strategic high frequency trader receives an imperfect signal about future order flows, and exploits his speed advantage to optimize his quoting policy. We determine the provision of liquidity, order cancellations, and impact on low frequency traders as a function of both the high frequency trader's latency, and the market volatility. The model predicts that volatility leads high frequency traders to reduce their provision of liquidity. Finally, we analyze the impact of various policies designed to potentially regulate high frequency trading.