OPTIMAL TRADING STRATEGY WITH OPTIMAL HORIZON

Edward E. Qian

Portfolio implementation is an essential part of active investment strategies. The trading horizon—the length of time allocated for trade implementation, is an important consideration in portfolio trading. Previous research on optimal trading limits the trading horizon as a fixed value. In this paper, we treat it as an endogenous factor and find the optimal trading horizon as a part of optimal trading strategy to further reduce trading costs. We derive analytical results for optimal trading strategy with optimal horizon and provide numerical examples for illustration.