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An event time study of the price reaction to large retail trades

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  • Frino, Alex
  • Jarnecic, Elvis
  • Lepone, Andrew

Abstract

This paper analyzes large retail trades using an event study approach. A major finding in studies of this nature is an immediate reversal on the trade subsequent to the large transaction, for both large purchases and large sales. This reversal is inconsistent with the overwhelming majority of previous findings which show a stock price continuation following purchases to the close of trading. We confirm the reversals first using transaction prices, and then show that continuations follow both large purchases and sales when quote data is used. These large trades do not lead to a fundamental change in stock price volatility. We conclude that the transaction price reversal is driven by natural bid-ask bounce around large purchases and large sales.

Suggested Citation

  • Frino, Alex & Jarnecic, Elvis & Lepone, Andrew, 2009. "An event time study of the price reaction to large retail trades," The Quarterly Review of Economics and Finance, Elsevier, vol. 49(2), pages 617-632, May.
    • Handle: RePEc:eee:quaeco:v:49:y:2009:i:2:p:617-632
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    Cited by:

    1. Alex Frino & Andrew Lepone & Grace Lepone, 2019. "Price Impact of Corporate Bond Trading: Evidence from the Australian Securities Exchange," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 22(03), pages 1-22, September.
    2. Murphy Jun Jie Lee, 2013. "The Microstructure of Trading Processes on the Singapore Exchange," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 4, July-Dece.
    3. Murphy Jun Jie Lee, 2013. "The Microstructure of Trading Processes on the Singapore Exchange," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 2-2013.
    4. Aktas, Osman Ulas & Kryzanowski, Lawrence, 2014. "Market impacts of trades for stocks listed on the Borsa Istanbul," Emerging Markets Review, Elsevier, vol. 20(C), pages 152-175.

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