Informed Trading and the Price Impact of Block Trades: A High Frequency Trading Analysis

50 Pages Posted: 25 Nov 2014 Last revised: 31 Jul 2016

See all articles by Yuxin Sun

Yuxin Sun

Queen's University Belfast - Queen's Management School

Gbenga Ibikunle

University of Edinburgh; European Capital Markets Cooperative Research Centre

Date Written: July 29, 2016

Abstract

Using high frequency data from the London Stock Exchange (LSE), we investigate the relationship between informed trading and the price impact of block trades on intraday and inter-day basis. Price impact of block trades is stronger during the first hour of trading; this is consistent with the hypothesis that information accumulates overnight during non-trading hours. Furthermore, private information is gradually incorporated into prices despite heightened trading frequency. Evidence suggests that informed traders exploit superior information across trading days, and stocks with lower transparency exhibit stronger information diffusion effects when traded in blocks, thus informed block trading facilitates price discovery.

Keywords: Informed trading, Block trades, Transparency, Opacity, Price impact, Price discovery

JEL Classification: G12, G14

Suggested Citation

Sun, Yuxin and Ibikunle, Gbenga, Informed Trading and the Price Impact of Block Trades: A High Frequency Trading Analysis (July 29, 2016). International Review of Financial Analysis, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2530079 or http://dx.doi.org/10.2139/ssrn.2530079

Yuxin Sun

Queen's University Belfast - Queen's Management School ( email )

Office 0G-018
185 Stranmillis Road
Belfast, BT9 5EE
United Kingdom

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

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