In Search of Liquidity: Block Trades in the Upstairs and Downstairs Markets

Posted: 19 Jan 1995

Multiple version iconThere are 2 versions of this paper

Date Written: September 1994


This paper examines empirically the role of "upstairs" and "downstairs" (batch and continuous) markets in providing liquidity for large-block transactions. Using data on 21,077 large-block transactions in Dow Jones stocks, we find that downstairs markets are a significant source of liquidity for even the largest trades. Downstairs markets account for 83 percent of trading value in our sample; for orders above 50,000 shares, this figure is 72 percent. However, larger trades are more likely to be facilitated in the upstairs market or in batch markets such as the opening or after-hours crossing sessions. Correcting for price discreteness, the expected price impacts for orders over roughly 20,000 shares are lower for trades facilitated upstairs than for trades sent directly downstairs. However,as the differences in the predicted price impacts are small, downstairs markets may provide competitive pricing over much larger order size ranges when other costs to using upstairs intermediation (arising from information leakage, commissions and the negotiation process) are considered.

JEL Classification: G14

Suggested Citation

Madhavan, Ananth and Cheng, Minder, In Search of Liquidity: Block Trades in the Upstairs and Downstairs Markets (September 1994). Available at SSRN:

Ananth Madhavan (Contact Author)

BlackRock, Inc. ( email )

400 Howard Street
San Francisco, CA 94105
United States

Minder Cheng

ThirdStream Partners LLC ( email )

650 California Street
31st Floor
San Francisco, CA 94108
United States

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