Price Behaviour Surrounding Blocks: Asymmetric or Bid-Ask Bias

Abstract

This paper analyses price effects of block trades for the 30 stocks that comprise the Dow Jones Industrial Average for the period January 1993 to October 2001. Previous research shows prices revert following sales, but remain high after buys, creating an asymmetry between block purchases and sales. Extant literature has offered several conjectures as to the source of the asymmetry. We replicate the asymmetry documented in previous literature and provide a new conjecture as to its source, specifically bid-ask bias. Results show that purging block trade price effects of bid-ask bias produces symmetry in the behaviour of block trade price effects. This suggests research design issues are driving the asymmetry documented in previous literature, and that purchases are not more informative than sales.