Price Impact Asymmetry of Block Trades: An Institutional Trading Explanation

39 Pages Posted: 11 Dec 2000

See all articles by Gideon Saar

Gideon Saar

Cornell University - Samuel Curtis Johnson Graduate School of Management

Multiple version iconThere are 4 versions of this paper

Date Written: September 2000

Abstract

This paper develops a theoretical model to explain the permanent price impact asymmetry between buyer and seller-initiated block trades (the permanent price impact of buys is larger than that of sells). The model shows how the trading strategy of institutional portfolio managers creates a difference between the information content of buys and sells. The main implication of the model is that the history of price performance influences the asymmetry: The longer the run-up in a stock's price, the less the asymmetry. The intensity of institutional trading and the frequency of information events affect the asymmetry differently depending on recent price performance.

Keywords: Market microstructure, institutional trading, permanent price impact, block trades, information asymmetry

JEL Classification: G10, G23, D82

Suggested Citation

Saar, Gideon, Price Impact Asymmetry of Block Trades: An Institutional Trading Explanation (September 2000). Available at SSRN: https://ssrn.com/abstract=249618 or http://dx.doi.org/10.2139/ssrn.249618

Gideon Saar (Contact Author)

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

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