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

REVIEW OF FINANCIAL STUDIES, Vol. 9 No. 1

Posted: 29 Nov 1995

See all articles by Donald B. Keim

Donald B. Keim

University of Pennsylvania - Wharton School

Ananth Madhavan

BlackRock, Inc.

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Abstract

This paper develops a model of the upstairs market where order size, beliefs, and prices are determined endogenously. We test the model's predictions using unique data for 5,625 equity trades during 1985-1992 that are known to be upstairs transactions and are identified as either buyer-or seller-initiated. We find that price movements prior to the trade date are significantly positively related to trade size, consistent with information leakage as the block is "shopped" upstairs. Further, the temporary price impact or liquidity effect is a concave function of order size, which may result from upstairs intermediation.

JEL Classification: G13

Suggested Citation

Keim, Donald B. and Madhavan, Ananth, The Upstairs Market for Large-Block Transactions: Analysis and Measurement of Price Effects. REVIEW OF FINANCIAL STUDIES, Vol. 9 No. 1. Available at SSRN: https://ssrn.com/abstract=6967

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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