Journal title STUDI ECONOMICI
Author/s Alex Frino, Vito Mollica, Maria Grazia Romano
Publishing Year 2015 Issue 2013/111 Language Italian
Pages 25 P. 25-49 File size 184 KB
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The article examines the impact of transaction costs on the trading strategy of informed institutional investors in a sequential trading market where traders can choose to transact a large or a small amount of stock. The analysis shows how the trading strategy of informed investors and the price impact of their trades depends on market conditions. The main prediction of the model is that institutional buyers are, on average, more aggressive than institutional sellers in bearish markets and less aggressive in bullish markets. Hence, the price impact is higher for purchases when market conditions are bearish, while it is higher for sales when market conditions are bullish. However, this asymmetry vanishes during strongly bearish or bullish phases, when information-based orders stop because the informational advantage of institutional investors becomes too small with respect to the transaction costs.
Keywords: Block trade, market impact, asymmetry
Jel codes: G14, G15
Alex Frino, Vito Mollica, Maria Grazia Romano, Transaction fees and trading strategies in financial markets in "STUDI ECONOMICI " 111/2013, pp 25-49, DOI: 10.3280/STE2013-111002