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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/26957
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| Title: | Price Impact Asymmetry of Block Trades: An Institutional Trading Explanation |
| Authors: | Saar, Gideon |
| Issue Date: | Oct-1999 |
| Series/Report no.: | FIN-99-030 |
| Abstract: | Empirical research in finance documented the existence of a permanent
price impact asymmetry between buyer and seller-initiated block trades:
the permanent price impact of buys is larger than that of sells. This
paper develops a theoretical model to explain and investigate the
asymmetry phenomenon. The model formalizes an intuition that the dynamic
trading strategy of profit-maximizing institutional portfolio managers
creates a difference between the information content of buys and sells.
It is this difference that causes the expected permanent price impact
asymmetry. The model produces new empirical implications concerning the
relationship between the asymmetry phenomenon and the economic
environment. The main implication of the model is that the history of
price performance in uences the asymmetry. The longer the run-up in a
stock's price, the less is the asymmetry. The greater the trading
intensity of institutional investors or the more
"informationally-active" a stock, the more pronounced is the
asymmetry when a stock's price has not been going up or is at the
beginning of a price run-up. The opposite result appears after a long
period of (abnormal) price appreciation. |
| URI: | http://hdl.handle.net/2451/26957 |
| Appears in Collections: | Finance Working Papers
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