Large trades and intraday futures price behavior

Abstract

This study examines the effects of large trades executed by outside customer on the prices of futures contracts traded on the Chicago Mercantile Exchange. We find that, on average, large buyer‐initiated trades have a larger permanent price impact (information effect) than large seller‐initiated trades, whereas the opposite is found for the temporary price impact (liquidity effects) of large trades. These results are consistent with previous findings for block and institutional trades in equity markets. However, we also find that the information effects of large sells are larger than large buys in bearish markets, whereas the results are the reverse in bullish markets. The liquidity price effects of buys are larger than the liquidity price effects of sells in bearish markets whereas the reverse results hold in bullish markets. Our results are consistent with the hypothesis that the current economic condition is a key determinant of asymmetric price effects between large buys and large sells. © 2008 Wiley Periodicals, Inc. Jrl Fut Mark 28:1147–1181, 2008

Price Impacts of Large Trades in Futures Markets: Evidence From Turkey

“…Large sell trades also have negative sign, indicating price reversals after large sell trades. These results are consistent with the work of Frino et al (2008), who reports similar findings for the S&P 500 index futures. The results are also partially consistent with the work of Frino et al (2005) and Chou et al (2011), who study, respectively, the Australian SPI 200 index futures contracts and the Taiwan Stock Exchange Index futures contracts.…”

“…To define large transactions in futures market, we follow Frino et al (2008), who develop five trade size categories based on empirical distribution of trading volume for all transactions: first size, up to the 50th percentile; second size, from the 50th percentile up to, but not including, the 70th percentile; third size, from the 70th percentile up to, but not including, the 90th percentile; fourth size, from the 90th percentile up to, but not including, the 95th percentile; and the fifth size, which is greater than the 95th percentile.…”

“…Following Frino et al (2008), volume weighted price effects are also calculated to consider the volume effect, by dividing the trade volume by the total volume of related trade size category. Current economic conditions are considered, in line with Chiyachantana et al (2004), and the price impacts of large trades in bullish and bearish markets are analysed.…”

“…Additionally, they conclude that the trade size is a small portion of the total variation in the implicit cost of trading, which is found to be represented by liquidity cost in their study. Frino et al (2008) analyse the price impact of large outside customers for five futures contracts, including two index futures in the Chicago Mercantile Exchange. They determine that large purchases' permanent price effect is higher than that of large sales, and vice versa for temporary price effect, consistent with previous equity market findings.…”

Further analysis of the speed of response to large trades in interest rate futures

“…Previous empirical research has examined the impact of the information contained in trades on prices and liquidity. Information-based trading in futures markets is evident in the direction of unexpected order flow (see, e.g., Kempf and Korn, 1999), the choice of order type (Kurov, 2005), and trade size (Frino, Bjursell, Wang, & Lepone, 2008). Large block trades also produce a marked disruption to liquidity (Aspris, Cummings, & Frino, 2009).…”