The Determinants of the Price Impact of Block Trades: Further Evidence

13 Pages Posted: 29 Jan 2007

See all articles by Alex Frino

Alex Frino

The University of Sydney - Discipline of Finance; Financial Research Network (FIRN)

Andrew Lepone

University of Sydney; Financial Research Network (FIRN)

Elvis Jarnecic

The University of Sydney; Financial Research Network (FIRN)

Abstract

This article extends previous literature which examines the determinants of the price impact of block trades on the Australian Stock Exchange. As previous literature suggests that liquidity exhibits intraday patterns, we introduce time of day dummy variables to explore time dependencies in price impact. Following theoretical developments in previous literature, the explanatory power of the bidask spread, a lagged cumulative stock return variable and a refined measure of market returns are also examined. The model estimated explains approximately 29 per cent of the variation in price impact. Block trades executed in the first hour of trading experience the greatest price impact, while market conditions, lagged stock returns and bidask spreads are positively related to price impact. The bidask spread provides most of the explanatory power. This suggests that liquidity is the main driver of price impact.

Suggested Citation

Frino, Alex and Lepone, Andrew and Jarnecic, Elvis, The Determinants of the Price Impact of Block Trades: Further Evidence. Abacus, Vol. 43, No. 1, pp. 94-106, March 2007, Available at SSRN: https://ssrn.com/abstract=959734 or http://dx.doi.org/10.1111/j.1467-6281.2007.00219.x

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

Andrew Lepone

University of Sydney ( email )

University of Sydney
Sydney NSW 2006
Australia

Financial Research Network (FIRN)

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

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

Elvis Jarnecic

The University of Sydney ( email )

University of Sydney
Sydney, NSW 2006
Australia

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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