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The Price Impact of Stock Trades: Evidence from the Prague Stock Exchange

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Abstract

Using high-frequency trade and quote data from the Prague Stock Exchange, this paper investigates the price impact of stock trades using a vector autoregressive model. We find that (a) full impact of a trade on the security price is not felt instantaneously but a with a protracted lag, (b) as a function of trade innovation size, the ultimate impact of the innovation on the quote is non-linear, positive, increasing, and convex, and (c) there is a significant causal pattern (acc. to Grange-Sims) running from lagged quote revisions to trades as well as from trades to quote revisions.

Suggested Citation

  • Vít Bubák & Filip Žikeš, 2006. "The Price Impact of Stock Trades: Evidence from the Prague Stock Exchange," Working Papers IES 2006/19, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Apr 2006.
    • Handle: RePEc:fau:wpaper:wp2006_19
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    File URL: http://ies.fsv.cuni.cz/default/file/download/id/8851
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    More about this item

    Keywords

    vector autoregressive model; market microstructure; price impact of stock trades;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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