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Title:Time and the price impact of a trade: A structural approach PDF Logo
Authors:Grammig, Joachim G.
Theissen, Erik
Wünsche, Oliver
Issue Date:2011
Series/Report no.:CFS Working Paper 2011/08
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. This result is consistent with the predictions of Admati and Pfleiderer's (1988) rational expectations model, and also with models of dynamic trading like those proposed by Parlour (1998) and Foucault (1999). Our results cast doubt on the common wisdom that fast markets bear particularly high adverse selection risks for uninformed market participants.
Subjects:Price Impact of Trades
Trading Intensity
Dynamic Duration Models
Spread Decomposition Models
Adverse Selection Risk
JEL:G10
C32
Persistent Identifier of the first edition:urn:nbn:de:hebis:30-92963
Document Type:Working Paper
Appears in Collections:CFS Working Paper Series, Universität Frankfurt a. M.

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