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Price impact of block trades: the curious case of downstairs trading in the EU emissions futures market

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  • Gbenga Ibikunle
  • Andros Gregoriou
  • Naresh R. Pandit

Abstract

Using high-frequency data from the European Climate Exchange (ECX), we examine the determinants of price impact of €21 billion worth of block trades during 2008-2011 in the European carbon market. We find that wider bid-ask spreads and volatility are characterised by a smaller price impact. Larger levels of price impact are more likely to occur during the middle of the trading day, specifically the four-hour period between 11 a.m. and 3 p.m., than during the first or final hours. Purchase block trades induce a relatively smaller price impact on price run-up, while sell block trades exhibit a larger price impact on price run-up. We conclude that block trades on the ECX induce less price impact than in equity or conventional futures markets, and that a significant proportion of the effects contradict findings on block trades in those markets; thus, we provide the first evidence of the curious bent to block trading in the European Union emissions trading scheme.

Suggested Citation

  • Gbenga Ibikunle & Andros Gregoriou & Naresh R. Pandit, 2016. "Price impact of block trades: the curious case of downstairs trading in the EU emissions futures market," The European Journal of Finance, Taylor & Francis Journals, vol. 22(2), pages 120-142, January.
    • Handle: RePEc:taf:eurjfi:v:22:y:2016:i:2:p:120-142
    DOI: 10.1080/1351847X.2014.935871
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    Cited by:

    1. Rannou, Yves, 2019. "Limit order books, uninformed traders and commodity derivatives: Insights from the European carbon futures," Economic Modelling, Elsevier, vol. 81(C), pages 387-410.
    2. Ibrahim, Boulis Maher & Kalaitzoglou, Iordanis Angelos, 2016. "Why do carbon prices and price volatility change?," Journal of Banking & Finance, Elsevier, vol. 63(C), pages 76-94.

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