Price Impact of Block Trades: The Curious Case of Downstairs Trading in the EU Emissions Futures Market

The European Journal of Finance, Forthcoming

41 Pages Posted: 2 Nov 2011 Last revised: 14 Mar 2016

See all articles by Gbenga Ibikunle

Gbenga Ibikunle

University of Edinburgh; European Capital Markets Cooperative Research Centre

Andros Gregoriou

University of East Anglia

Naresh Pandit

University of East Anglia (UEA) - Norwich Business School

Date Written: January 1, 2016

Abstract

Using high-frequency data from the European Climate Exchange (ECX), we examine the determinants of price impact of €21 billion-worth of block trades during 2008-2011 in the European carbon market. We find that wider bid-ask spreads and volatility are characterised by smaller price impact. Larger levels of price impact are more likely to occur during the middle of the trading day than during the first or final hours. Purchase block trades induce relatively smaller price impact on price run-up, while sell block trades exhibit larger price impact on price run-up. We conclude that block trades on the ECX induce less price impact than in equity or conventional futures markets, and that a significant proportion of the effects contradict findings on block trades in those markets; thus we provide the first evidence of the curious bent to block trading in the EU Emissions Trading Scheme (EU-ETS).

Keywords: Carbon futures, Block trades, Price impact, European Climate Exchange, European Union Emissions Trading Scheme (EU-ETS), Determinants, Liquidity

JEL Classification: G12, G13, G14, G15, G18

Suggested Citation

Ibikunle, Gbenga and Gregoriou, Andros and Pandit, Naresh, Price Impact of Block Trades: The Curious Case of Downstairs Trading in the EU Emissions Futures Market (January 1, 2016). The European Journal of Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1952749 or http://dx.doi.org/10.2139/ssrn.1952749

Gbenga Ibikunle (Contact Author)

University of Edinburgh ( email )

Old College
South Bridge
Edinburgh, Scotland EH8 9JY
United Kingdom

European Capital Markets Cooperative Research Centre ( email )

Viale Pidaro 42
Pescara, 65121
Italy

Andros Gregoriou

University of East Anglia ( email )

Norwich Research Park
Norwich, Norfolk NR4 7TJ
United Kingdom

Naresh Pandit

University of East Anglia (UEA) - Norwich Business School ( email )

Norwich
NR4 7TJ
United Kingdom

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