Price Impact Asymmetry of Block Trades: An Institutional Trading Explanation

Gideon Saar

The Review of Financial Studies, 2001, vol. 14, issue 4, 1153-81

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. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.

Date: 2001
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Persistent link: https://EconPapers.repec.org/RePEc:oup:rfinst:v:14:y:2001:i:4:p:1153-81

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The Review of Financial Studies is currently edited by Itay Goldstein

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