Price Impact Asymmetry of Block Trades: An Institutional Trading Explanation
- 1 October 2001
- journal article
- research article
- Published by Oxford University Press (OUP) in The Review of Financial Studies
- Vol. 14 (4) , 1153-1181
- https://doi.org/10.1093/rfs/14.4.1153
Abstract
This article develops a theoretical model to explain the permanent price impact asymmetry between buyer- and seller-initiated block trades (the permanent price impact of buys is larger than that of sells). The model shows how the trading strategy of institutional portfolio managers creates a difference between the information content of buys and sells. The main implication of the model is that the history of price performance influences the asymmetry: the longer the run-up in a stock’s price, the less the asymmetry. The intensity of institutional trading and the frequency of information events affect the asymmetry differently depending on recent price performance.Keywords
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