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Price Impact Asymmetry of Block Trades: An Institutional Trading Explanation

Price Impact Asymmetry of Block Trades: An Institutional Trading Explanation This article develops a theoretical model to explain the permanent price impact asymmetry between buyer- and seller-initiated block trades (the permanent price impact of buys is larger than that of sells). The model shows how the trading strategy of institutional portfolio managers creates a difference between the information content of buys and sells. The main implication of the model is that the history of price performance influences the asymmetry: the longer the run-up in a stock’s price, the less the asymmetry. The intensity of institutional trading and the frequency of information events affect the asymmetry differently depending on recent price performance. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Review of Financial Studies Oxford University Press

Price Impact Asymmetry of Block Trades: An Institutional Trading Explanation

The Review of Financial Studies , Volume 14 (4) – Oct 22, 2001

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Publisher
Oxford University Press
Copyright
Copyright The Society for Financial Studies 2001
ISSN
0893-9454
eISSN
1465-7368
DOI
10.1093/rfs/14.4.1153
Publisher site
See Article on Publisher Site

Abstract

This article develops a theoretical model to explain the permanent price impact asymmetry between buyer- and seller-initiated block trades (the permanent price impact of buys is larger than that of sells). The model shows how the trading strategy of institutional portfolio managers creates a difference between the information content of buys and sells. The main implication of the model is that the history of price performance influences the asymmetry: the longer the run-up in a stock’s price, the less the asymmetry. The intensity of institutional trading and the frequency of information events affect the asymmetry differently depending on recent price performance.

Journal

The Review of Financial StudiesOxford University Press

Published: Oct 22, 2001

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