Asymmetry in the Permanent Price Impact of Block Purchases and Sales: Theory and Empirical Evidence

36 Pages Posted: 14 Sep 2012

See all articles by Alex Frino

Alex Frino

The University of Sydney - Discipline of Finance; Financial Research Network (FIRN)

Vito Mollica

Macquarie Graduate School of Management; Capital Markets CRC Limited (CMCRC); Macquarie University, Macquarie Business School

Maria Grazia Romano

Centre for Studies in Economics and Finance (CSEF); Università degli Studi di Salerno

Date Written: September 13, 2012

Abstract

This paper extends previous research which has examined the market impact of large transactions in bull and bear markets by examining the information eff ects of trades. Previous research has demonstrated that the information effects of buy trades are greater than the information eff ects of sell trades. We develop a theoretical model which predicts that this diff erence is greater in bear markets than bull markets, consistent with the (almost counter-intuitive) proposition that buy trades are relatively more informed in bear markets. Using a sample of trades executed on the NYSE in bull and bear market periods, we find evidence consistent with our primary theoretical model.

Keywords: block trade, market impact, asymmetry

JEL Classification: G14, G15

Suggested Citation

Frino, Alex and Mollica, Vito and Romano, Maria Grazia, Asymmetry in the Permanent Price Impact of Block Purchases and Sales: Theory and Empirical Evidence (September 13, 2012). Available at SSRN: https://ssrn.com/abstract=2145720 or http://dx.doi.org/10.2139/ssrn.2145720

Alex Frino (Contact Author)

The University of Sydney - Discipline of Finance ( email )

Futures Research Centre
P.O. Box H58
Sydney NSW
Australia
+61 2 9299 1809 (Phone)
+61 2 9299 1830 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Vito Mollica

Macquarie Graduate School of Management ( email )

Capital Markets CRC Limited (CMCRC) ( email )

Level 3, 55 Harrington Street
Sydney, 2000
Australia

Macquarie University, Macquarie Business School ( email )

New South Wales 2109
Australia

Maria Grazia Romano

Centre for Studies in Economics and Finance (CSEF) ( email )

Via Cintia, Monte S. Angelo
Napoli, I - 80126
Italy

Università degli Studi di Salerno ( email )

Via Giovanni Paolo II, 132
Fisciano, Salerno 84084
Italy

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