This paper investigates the market reaction to short sales on an intraday basis in a market setting where short sales are transparent immediately following execution. We find a mean reassessment of stock value following short sales of up to Ϫ0.20 percent with adverse information impounded within fifteen minutes or twenty trades. Short sales executed near the end of the financial year and those related to arbitrage and hedging activities are associated with a smaller price reaction; trades near information events precipitate larger price reactions. The evidence is generally weaker for short sales executed using limit orders relative to market orders.

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Prior research into the cost of trading on the Australian Stock Exchange has identified brokerage fees and the bid‐ask spread as significant elements of total transaction costs. While an enormous volume of research has examined the determinants of spreads in US markets, no work has so far addressed the issue for the Australian market‐place. Given the importance of spreads as a transaction cost, this work redresses this imbalance and at the same time provides evidence on whether alternative market structures underlying different exchanges give rise to differences in the determinants of spreads. Using prior US research as our benchmark, our results suggest that notwithstanding microstructure differences between the Australian and US exchanges, there are three fundamental determinants of spreads that transcend differences in the market‐places. These are the level of trading activity, price volatility and stock price levels. Together these three factors account for up to 94% of the total cross‐sectional variation in percentage bid ask spreads on the ASX.

This article extends previous literature which examines the determinants of the price impact of block trades on the Australian Stock Exchange. As previous literature suggests that liquidity exhibits intraday patterns, we introduce time of day dummy variables to explore time dependencies in price impact. Following theoretical developments in previous literature, the explanatory power of the bid-ask spread, a lagged cumulative stock return variable and a refined measure of market returns are also examined. The model estimated explains approximately 29 per cent of the variation in price impact. Block trades executed in the first hour of trading experience the greatest price impact, while market conditions, lagged stock returns and bid-ask spreads are positively related to price impact. The bid-ask spread provides most of the explanatory power. This suggests that liquidity is the main driver of price impact.Large or 'block' transactions play a major role in trading on stock exchanges worldwide. Nearly half of the trades on the NYSE are made in blocks of 10,000 shares or more. Jain (2003) claims that institutional activity, which is predominantly made up of block transactions, accounts for over 70 per cent of all trading activity. The significant quantity of block trades has led to substantial research in the area. Most examines the price impact of block trades, where price impact is measured by comparing the transaction price to an unperturbed price that would have prevailed if the trade were not executed. 1 The causes of price impact are also addressed in the literature. In particular, this has centred on explaining the magnitude and variation in price impact.