Price Behaviour Surrounding Blocks: Asymmetric or Bid-Ask Bias

21 Pages Posted: 14 Jun 2003

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

Terry S. Walter

University of Sydney; University of Technology, Sydney - School of Finance and Economics; Financial Research Network (FIRN)

Abstract

This paper analyses price effects of block trades for the 30 stocks that comprise the Dow Jones Industrial Average for the period January 1993 to October 2001. Previous research shows prices revert following sales, but remain high after buys, creating an asymmetry between block purchases and sales. Extant literature has offered several conjectures as to the source of the asymmetry. We replicate the asymmetry documented in previous literature and provide a new conjecture as to its source, specifically bid-ask bias. Results show that purging block trade price effects of bid-ask bias produces symmetry in the behaviour of block trade price effects. This suggests research design issues are driving the asymmetry documented in previous literature, and that purchases are not more informative than sales.

Keywords: Block trades, Bid-Ask Bias, Asymmetry, Execution Costs, Market Microstructure

JEL Classification: G14

Suggested Citation

Frino, Alex and Mollica, Vito and Walter, Terry Stirling, Price Behaviour Surrounding Blocks: Asymmetric or Bid-Ask Bias. Available at SSRN: https://ssrn.com/abstract=394987 or http://dx.doi.org/10.2139/ssrn.394987

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

Terry Stirling Walter

University of Sydney ( email )

P.O. Box H58
Sydney, NSW 2006
Australia

University of Technology, Sydney - School of Finance and Economics ( email )

Haymarket
Sydney, NSW 2007
Australia
+61 2 9514 3860 (Phone)
+61 2 9514 7711 (Fax)

HOME PAGE: http://datasearch.uts.edu.au/business/finance/staff/StaffDetails.cfm?UnitStaffId=5373

Financial Research Network (FIRN)

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

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

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