Price Impact Asymmetry of Block Trades: An Institutional Trading Explanation
39 Pages Posted: 11 Dec 2000
Date Written: September 2000
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: Suggested Citation