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The Price Impact of Stock Trades: Evidence from the Prague Stock Exchange

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Abstract

Using high-frequency trade and quote data from the Prague Stock Exchange, this paper investigates the price impact of stock trades using a vector autoregressive model. We find that (a) full impact of a trade on the security price is not felt instantaneously but a with a protracted lag, (b) as a function of trade innovation size, the ultimate impact of the innovation on the quote is non-linear, positive, increasing, and convex, and (c) there is a significant causal pattern (acc. to Grange-Sims) running from lagged quote revisions to trades as well as from trades to quote revisions.

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File URL: http://ies.fsv.cuni.cz/default/file/download/id/8851
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Bibliographic Info

Paper provided by Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies in its series Working Papers IES with number 2006/19.

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Length: 22 pages
Date of creation: Apr 2006
Date of revision: Apr 2006
Handle: RePEc:fau:wpaper:wp2006_19

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Keywords: vector autoregressive model; market microstructure; price impact of stock trades;

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