Asymmetry in the Permanent Price Impact of Block Purchases and Sales: Theory and Empirical Evidence

Abstract

Previous research has identified that the information effects of buyer‐initiated trades are greater than seller‐initiated trades. We develop a theoretical model that predicts block purchases are relatively more informed in bear markets and block sales are relatively more informed in bull markets. Using a sample of large trades executed in the E‐mini S&P 500 index futures and SPDR S&P 500 exchange traded fund, we find evidence consistent with our theoretical model. Our results are robust to volatility and macro‐economic news announcements categorized as bullish or bearish. © 2016 Wiley Periodicals, Inc. Jrl Fut Mark 37:359–373, 2017

The price behavior around initial loan announcements: Evidence from zero-leverage firms in the UK

“…Tests of equality for all three measured price impacts show that purchases have a significantly greater impact than sales, and the asymmetry is more pronounced in permanent and total effects. The results of Table 2 confirm that the level of asymmetric price impact depends on both the information content of the trade and on the reaction of market makers (Frino et al, 2017).…”

“…A zero-leverage firm is defined as a company that does not possess any short or long-term debt. Frino et al (2017) suggest that the magnitude of price impact depends on both the information content of a trade and how market makers respond to this information. Given the level of asymmetr ic information changes around the initial loan announcement of zero leverage firms, we believe that it is very important to examine how the market responds to these substantial informa tio n fluctuations.…”