Informed trading and the price impact of block trades: A high frequency trading analysis |
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| Affiliation: | 1. University of Edinburgh, United Kingdom;2. Fondazione European Capital Markets Cooperative Research Centre (ECMCRC), Pescara, Italy;1. KAIST College of Business, Korea Advanced Institute of Science and Technology, 85 Hoegi-Ro, Dongdaemoon-Gu, Seoul 130-722, Korea;2. Samsung Electronics, 129 Samsung-Ro, Yeongtong-Gu,Suwon-Si, Gyeongi-Do 443-742, Korea;1. Faculty of Science Economics and Management of Tunis (FSEG Tunis), University of Tunis, El Manar, Tunisia;2. Higher Institute of Management of Tunis (ISG Tunis), Bardo 2000, Tunis, Tunisia |
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| Abstract: | Using high frequency data from the London Stock Exchange (LSE), we investigate the relationship between informed trading and the price impact of block trades on intraday and inter-day basis. Price impact of block trades is stronger during the first hour of trading; this is consistent with the hypothesis that information accumulates overnight during non-trading hours. Furthermore, private information is gradually incorporated into prices despite heightened trading frequency. Evidence suggests that informed traders exploit superior information across trading days, and stocks with lower transparency exhibit stronger information diffusion effects when traded in blocks, thus informed block trading facilitates price discovery. |
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