From Alpha to Execution: Trading Horizons, Regimes, and Schedules under Concave Impact and Hurst Scaling
How to sell large stock positions without crashing the price yourself
When traders need to sell large blocks of stock, slowing down the sale usually reduces price damage—but how slow is actually optimal? This paper shows the answer depends on two competing forces: how much the sale itself moves the market (which gets cheaper per share when spread over time), and how fast the trader's original profit opportunity is decaying. The researchers found that for realistic market conditions, the optimal time window can span a range more than ten times wider than typical trading models suggest, and they derived the precise schedule for releasing shares that saves 10-17% on execution costs compared to uniform, constant-rate sales.
Large institutional trades are a daily fact of markets—pension funds, mutual funds, and hedge funds regularly need to exit or enter positions worth millions. Poorly timed execution costs them real money; even small percentage improvements compound across thousands of trades. This framework gives traders a concrete way to decide not just *how* to sell, but *when to start and stop*, accounting for real market behavior where impact follows a power law rather than a simple linear formula. The 10-17% savings in costs translates directly to higher returns for investors and lower slippage in markets.