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The asymmetry of the price impact of block trades and the bid‐ask spread

Author

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  • Andros Gregoriou

Abstract

Purpose - 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.

Suggested Citation

  • Andros Gregoriou, 2008. "The asymmetry of the price impact of block trades and the bid‐ask spread," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 35(2), pages 191-199, May.
    • Handle: RePEc:eme:jespps:v:35:y:2008:i:2:p:191-199
    DOI: 10.1108/01443580810870164
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    Citations

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    Cited by:

    1. Murgia, Maurizio & Pinna, Andrea & Gottardo, Pietro & Bosetti, Luisella, 2019. "The impact of large orders in electronic markets," International Review of Economics & Finance, Elsevier, vol. 59(C), pages 174-192.
    2. Ren, Fei & Zhong, Li-Xin, 2012. "The price impact asymmetry of institutional trading in the Chinese stock market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 391(8), pages 2667-2677.
    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 4, July-Dece.
    4. Zhang, Sijia & Gregoriou, Andros, 2021. "The impact of order flow on event study returns: New evidence from zero-leverage firms," The Quarterly Review of Economics and Finance, Elsevier, vol. 80(C), pages 627-634.
    5. 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.
    6. Zhang, Sijia & Gregoriou, Andros, 2019. "The price behavior around initial loan announcements: Evidence from zero-leverage firms in the UK," Research in International Business and Finance, Elsevier, vol. 50(C), pages 191-200.
    7. Steffen, Viktoria, 2023. "A literature review on extreme price movements with reversal," Journal of Behavioral and Experimental Finance, Elsevier, vol. 38(C).
    8. Alex Frino & Vito Mollica & Maria Grazia Romano, 2013. "Transaction fees and trading strategies in financial markets," STUDI ECONOMICI, FrancoAngeli Editore, vol. 2013(111), pages 25-49.
    9. Fei Ren & Li-Xin Zhong, 2011. "Price impact asymmetry of institutional trading in Chinese stock market," Papers 1110.3133, arXiv.org.

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