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High price impact trades identication and its implication for volatility and price efficiency

Author

Listed:
  • Dionne, Georges

    (HEC Montreal, Canada Research Chair in Risk Management)

  • Zhou, Xiaozhou

    (University of Quebec at Montreal)

Abstract

We include Limit Order Book (LOB) matchedness as a new trade attribute to identify High Price Impact Trades (HPITs). HPITs are trades associated with large price changes relative to their volume proportion. We show that the inclusion of matchedness provides a finer analysis of the relationship between price contribution and trade categories. We further verify that a stronger presence of HPITs leads to a decline in volatility and improves price efficiency, which suggests a link between HPITs and informed trades.

Suggested Citation

  • Dionne, Georges & Zhou, Xiaozhou, 2024. "High price impact trades identication and its implication for volatility and price efficiency," Working Papers 24-3, HEC Montreal, Canada Research Chair in Risk Management.
    • Handle: RePEc:ris:crcrmw:2024_003
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    More about this item

    Keywords

    Matched trades; limit order book; price efficiency; price discovery;
    All these keywords.

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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