Abstract
The majority of block trading literature uses individual trades to calculate price impact costs. However, block traders are known to break up their large trades into smaller orders in order to reduce trading costs and hide private information. This paper uses proprietary data from the Singapore Exchange to re-examine price impact costs on block trading through implementing a more accurate re-packaging process. This paper finds that liquidity effects and information effects are significantly under-estimated and over-stated respectively when calculations are made in individual trades. Consistent with prior findings, the largest buy and sell packages face the highest liquidity premiums and have information content. In contrast, a price reversal is found after execution of a buy or sell package. New empirical evidence shows that institutional packages of all trade sizes and the largest retail packages have information content. Further evidence shows that a higher premium must be put up to attract retail investors to trade and the inability of retail investors to distinguished between informed and uninformed trade packages. Lastly, this paper finds that breaking up a large trade into smaller trades does not reduce price impact cost. In general, this paper highlights the importance of the re-packaging process when studying block trades and provides new empirical evidence surrounding price impact costs for both institutional and retail trade packages in the equities market.
Published Version
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