Information Environments and High Price Impact Trades: Implication for Volatility and Price Efficiency

67 Pages Posted: 25 Jun 2019 Last revised: 8 Nov 2019

See all articles by Georges Dionne

Georges Dionne

HEC Montreal - Department of Finance

Xiaozhou Zhou

University of Quebec at Montreal (UQAM) - School of Management (ESG)

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

Dionne, Georges and Zhou, Xiaozhou, Information Environments and High Price Impact Trades: Implication for Volatility and Price Efficiency (November 4, 2019). Proceedings of Paris December 2019 Finance Meeting EUROFIDAI - ESSEC, Available at SSRN: https://ssrn.com/abstract=3406919 or http://dx.doi.org/10.2139/ssrn.3406919

Georges Dionne (Contact Author)

HEC Montreal - Department of Finance ( email )

3000 Chemin de la Cote-Sainte-Catherine
Montreal, Quebec H3T 2A7
Canada
514-340-6596 (Phone)
514-340-5019 (Fax)

HOME PAGE: http://www.hec.ca/gestiondesrisques/

Xiaozhou Zhou

University of Quebec at Montreal (UQAM) - School of Management (ESG) ( email )

315, rue Sainte-Catherine Est
Montreal, Quebec H2X 3X2
Canada
514 987 3000 ext 0999 (Phone)

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