Improving VWAP strategies: A dynamical volume approach

In this paper, we present a new methodology for modeling intraday volume which allows for a reduction of the execution risk in VWAP (Volume Weighted Average Price) orders. The results are obtained for the all stocks included in the CAC40 index at the beginning of September 2004. The idea of considered models is based on the decomposition of traded volume into two parts: one reflects volume changes due to market evolutions, the second describes the stock specific volume pattern. The dynamics of the specific part of volume is depicted by ARMA, and SETAR models. The implementation of VWAP strategies imposes some dynamical adjustments within the day.