Liquidity and volatility around large trades: Evidence from the Tunisian market

Abstract

Whether temporary or permanent, price effects of large trades routed upstairs or downstairs do exist. These price movements have an impact on market liquidity and volatility. If it is admitted that block markets have seen a great expansion, it would be interesting to check if these upstairs markets cream skim the central market by reducing its liquidity. It would be also convenient to check if institutional investors would cause a persistent volatility on asset prices. This paper shows that in the Tunisian Stock Exchange, block trades do not harm market liquidity. The results also show that the volatility that accompanies these trades is not persistent. No more than five trading sessions are needed to offset the temporary increase of the volatility.

Keywords: Block trade, upstairs, resiliency, liquidity, volatility.