The asymmetry of the price impact of block trades and the bid-ask spread: Evidence from the London Stock Exchange
AbstractPurpose – This paper aims to examine the price impact of block trades for FTSE 100 firms. Design/methodology/approach – Using event studies a sample of 1.6 million block purchases and 1.2 million block sales over the time period 1998-2005 is analysed. Findings – Once block price effects are estimated using quote returns to eliminate bid-ask bias, the asymmetry in buyer and seller initiated trades is eliminated. Research limitations/implications – A possible avenue for future research may be to look at the impact of inflation on the asymmetry between block purchases and sales. This may be an interesting extension to the current study given that inflation appears to be an important determinant of the equity premium in international stock markets. Practical implications – The empirical results suggest that market liquidity is one of the factors that is driving the asymmetry between block purchases and sales on the London Stock Exchange. The paper is of interest to academics and practitioners who study and invest in block trades. Originality/value – This is the first study of the UK stock market to encapsulate bid-ask biases in block trades.
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Bibliographic InfoArticle provided by Emerald Group Publishing in its journal Journal of Economic Studies.
Volume (Year): 35 (2008)
Issue (Month): 2 (May)
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Other versions of this item:
- Andros Gregoriou, 2007. "The Asymmetry of the Price Impact of Block Trades and the Bid-Ask Spread. Evidence from the London Stock Exchange," Money Macro and Finance (MMF) Research Group Conference 2006 76, Money Macro and Finance Research Group.
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Engle, Robert F & Patton, Andrew J, 2000.
"Impacts of Trades in an Error-Correction Model of Quote Prices,"
University of California at San Diego, Economics Working Paper Series
qt6dm6093f, Department of Economics, UC San Diego.
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