如下

问题如下：

Wong follows the music industry and, specifically, Music Plus. After highly anticipated data about the music industry is released shortly after the market opens for trading, the share price of Music Plus quickly increases to $15.25. Wong evaluates the new data as it relates to Music Plus and concludes that the share price increase is an overreaction. She expects the price to quickly revert back to her revised fair value estimate of $14.20 within the same day. When the price is $15.22, she decides to prepare a large sell order equal to approximately 20% of the expected daily volume. She is concerned about information leakage from a public limit order. Wong’s supervisor suggests using algorithmic trading for the sell order of the Music Plus shares.

The trade algorithm that Wong should consider for the sell order of Music Plus shares is:

选项：

A.

a POV algorithm.

B.

an arrival price algorithm.

C.

a liquidity-seeking algorithm.

解释：

Correct Answer: C

Liquidity-seeking algorithms are appropriate for large orders that the portfolio manager or trader would like to execute quickly without having a substantial impact on the security price. The sell order for Music Plus shares is for 20% of the expected volume and therefore is a large order. Liquidity-seeking algorithms are also used when displaying sizable liquidity via limit orders could lead to unwanted information leakage and adverse security price movement. In these cases, the priority is to minimize information leakage associated with order execution and avoid signaling to the market the trading intentions of the portfolio manager or trader. Wong is concerned that a large limit order will reveal to the market her opinion the shares are overvalued.

A is incorrect because POV algorithms send orders following a volume participation schedule. As trading volume increases in the market, these algorithms will trade more shares, and as volume decreases, these algorithms will trade fewer shares. Wong needs to execute the sell order for Music Plus shares as quickly as possible because she expects the new information to be reflected in the share price quickly. Therefore, a POV algorithm is not appropriate.

B is incorrect because even though arrival price algorithms are used for orders in which the portfolio manager or trader believes prices are likely to move unfavorably and wishes to trade more aggressively to capture alpha, they are used when the security is relatively liquid or the order is not outsized (size less than 15% of the expected volume). The order size for Music Plus shares is large, at 20% of the expected volume.