Information Environments and High Price Impact Trades: Implication for Volatility and Price Efficiency
67 Pages Posted: 25 Jun 2019 Last revised: 8 Nov 2019
Date Written: November 4, 2019
Abstract
We include trade matchedness to Limit Order Book (LOB) as an extended identification dimension of High Price Impact Trades (HPITs). HPITs are trades associated with disproportionately large price changes in comparison with their volume proportion and are related to informed trades. We show that the introduction of matchedness provides finer informed trading identification, and we find that a stronger presence of HPITs leads to a decline in volatility due to more contrarian informed trades, but this decline varies with information environments. Finally, we conclude that HPITs mainly reflect belief-based (fundamental-based) information in a high (low) public disclosure environment.
Keywords: Price efficiency, Price discovery, Limit Order Book, Trade size clustering, Stealth trading
JEL Classification: C22, C41, C53, G11
Suggested Citation: Suggested Citation