The Upstairs Market for Large-Block Transactions: Analysis and Measurement of Price Effects

Posted: 16 May 1994

See all articles by Donald B. Keim

Donald B. Keim

University of Pennsylvania - Wharton School

Ananth Madhavan

BlackRock, Inc.

Multiple version iconThere are 2 versions of this paper

Date Written: May 1994


This paper analyzes the effect on equity prices of large- block transactions negotiated 'upstairs.' We develop a model of the upstairs market which yields testable hypotheses. We investigate these hypotheses with unique data for 5,625 block trades in 1985-1992. Unlike previous studies, all the trades in our data are negotiated upstairs and are identified as either buyer- or seller-initiated. This information is critical because many block trades examined in the previous literature occur downstairs. We find that price movements up to four weeks prior to the trade date are significantly related to trade size, consistent with information leakage as the block is "shopped" upstairs. This suggests that permanent price impacts measured relative to the price on the day preceding the block trade can severely underestimate the information contained in the block trade. The temporary price impact has a concave response to order size, which is consistent with our prediction of more intensive search in the upstairs market as trade size increases. Since our sample consists of mostly small market capitalization stocks, our estimated price impacts are substantially larger than found in previous studies. We also find that the price responses for buyer-and seller-initiated trades are asymmetric.

JEL Classification: G12

Suggested Citation

Keim, Donald B. and Madhavan, Ananth, The Upstairs Market for Large-Block Transactions: Analysis and Measurement of Price Effects (May 1994). Available at SSRN:

Donald B. Keim (Contact Author)

University of Pennsylvania - Wharton School ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States
215-898-7685 (Phone)
215-898-6200 (Fax)

Ananth Madhavan

BlackRock, Inc. ( email )

400 Howard Street
San Francisco, CA 94105
United States

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