RT Journal Article
SR Electronic
T1 Mean-Variance Optimization for Simulation of Order Flow
JF The Journal of Portfolio Management
FD Institutional Investor Journals
SP jpm.2022.1.376
DO 10.3905/jpm.2022.1.376
A1 Petter N. Kolm
A1 Nicholas Westray
YR 2022
UL https://pm-research.com/content/early/2022/06/10/jpm.2022.1.376.abstract
AB In this article, the authors propose an order flow simulator for meta orders such as those originating from the trading activity of buy-side firms. The simulator is designed with three key goals in mind. First, it should be simple to use and to integrate into different applications. Second, it must be computationally efficient to handle many securities. Third, the simulated order flow should possess statistical properties similar to those of observed order flow in the market.The authors provide two empirical examples. In addition to illustrating some statistical properties of the order flow simulator, they use the simulator to estimate the number of trades needed to determine whether order flow from a buy-side firm has alpha.