Time and the Price Impact of a Trade

Posted: 29 Oct 2013

See all articles by Alfonso Dufour

Alfonso Dufour

ICMA Centre, Henley Business School, University of Reading

Robert F. Engle

New York University - Leonard N. Stern School of Business - Department of Economics; New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER)

Date Written: July 15, 1999

Abstract

We use Hasbrouck's (1991) vector autoregressive model for prices and trades to empirically test and assess the role played by the waiting time between consecutive transactions in the process of price formation. We find that as the time duration between transactions decreases, the price impact of trades, the speed of price adjustment to trade-related information, and the positive autocorrelation of signed trades all increase. This suggests that times when markets are most active are times when there is an increased presence of informed traders; we interpret such markets as having reduced liquidity. Copyright The American Finance Association 2000.

Suggested Citation

Dufour, Alfonso and Engle, Robert F., Time and the Price Impact of a Trade (July 15, 1999). Journal of Finance, Vol. 55, No. 6, 2000. Available at SSRN: https://ssrn.com/abstract=2346683

Alfonso Dufour (Contact Author)

ICMA Centre, Henley Business School, University of Reading ( email )

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P.O. Box 242
Reading RG6 6BA
United Kingdom

Robert F. Engle

New York University - Leonard N. Stern School of Business - Department of Economics ( email )

269 Mercer Street
New York, NY 10003
United States

New York University (NYU) - Department of Finance

Stern School of Business
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New York, NY 10012-1126
United States

National Bureau of Economic Research (NBER)

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