Trading strategies of institutional investors in a limit order book market

The study aims to examine the trading strategies of institutional investors in the limit order book market. The study modifies the assumptions of prior studies [1,2] to match actual situations or to facilitate calculations. First, the investors' objective in the study is profit maximization rather than minimization of trading costs. Second, time is continuous rather than discrete. Third, price impact functions are non-linear and take the quadratic form that features increasing prices. Study results indicate that institutional investors adopt the increasing trading strategy if the permanent price impact dominates whereas they adopt the decreasing trading strategy if the transient price impact dominates. In addition, the average trading strategy is adopted if and only if the permanent and transient price impacts are combined in some fixed proportions.