Time and the Price Impact of a Trade: A Structural Approach

Grammig, Joachim ; Theissen, Erik ; Wünsche, Oliver

DOI: https://doi.org/10.2139/ssrn.968241
Additional URL: http://ssrn.com/abstract=968241
Document Type: Working paper
Year of publication: 2011
The title of a journal, publication series: Working Paper
Place of publication: Mannheim ; Tübingen
ISSN: 2304-7658
Publication language: English
Institution: Business School > ABWL u. Finanzierung (Theissen 2009-)
Subject: 330 Economics
Classification: JEL: G10 , C32,
Abstract: We revisit the role of time in measuring the price impact of trades using a new empirical method that combines spread decomposition and dynamic duration modeling. Previous studies which have addressed the issue in a vector-autoregressive framework conclude that times when markets are most active are times when there is an increased presence of informed trading. Our empirical analysis based on recent European and U.S. data offers challenging new evidence. We find that as trade intensity increases, the informativeness of trades tends to decrease. We explain this result by the crowding-out of limit orders by market orders during times of ample liquidity. Our study casts doubt on the common wisdom that fast markets bear particularly high adverse selection risks for uninformed market participants.

Dieser Eintrag ist Teil der Universitätsbibliographie.

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