The price impact asymmetry of institutional trading in the Chinese stock market |
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| Authors: | Fei Ren Li-Xin Zhong |
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| Affiliation: | 1. School of Business, East China University of Science and Technology, Shanghai 200237, China;2. School of Finance, Zhejiang University of Finance and Economics, Hangzhou 310018, China;3. Research Center for Econophysics, East China University of Science and Technology, Shanghai 200237, China;4. Engineering Research Center of Process Systems Engineering (Ministry of Education), East China University of Science and Technology, Shanghai 200237, China |
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| Abstract: | The asymmetric price impact between the institutional purchases and sales of 32 liquid stocks in the Chinese stock market in 2003 is carefully studied. We analyze the price impact in both drawup and drawdown trends with consecutive positive and negative daily price changes, and test the dependence of the price impact asymmetry on the market condition. For most of the stocks, institutional sales have a larger price impact than institutional purchases, and a larger impact of institutional purchases exists only in a few stocks with primarily increasing tendencies. We further study the mean return of trades surrounding institutional transactions, and find that the asymmetric behavior also exists before and after institutional transactions. A new variable is proposed to investigate the order book structure, and it can partially explain the price impact of institutional transactions. A linear regression for the price impact of institutional transactions further confirms our finding that institutional sales primarily have a larger price impact than institutional purchases in the bearish year 2003. |
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| Keywords: | Econophysics Price impact Institutional trading Market microstructure |
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