TY  - JOUR
AB  - Purpose The purpose of this paper is to test and model non-linearities in block price deviations when they are executed outside the bid-ask quotes. The author conducts an empirical analysis on 662,312 transactions that were traded outside the bid-ask quotes in 2014 on the London Stock Exchange.Design/methodology/approach The tests reject the linearity hypothesis and the paper shows that the exponential smooth transition autoregressive model is capable of capturing the non-linear behaviour of block price misalignments.Findings The findings imply that when the deviation of block prices from their quoted value is small (large), trading will occur slowly (rapidly) to restore equilibrium, suggesting that trading costs eliminate continuous trading and that the block trade market is efficient.Originality/value The purpose of this paper is to re-model block price deviations from the bid-ask quotes. The major contribution is that the paper presents new empirical evidence, which explicitly allows for the possibility that block price misalignments from the bid-ask quotes can be characterized by a non-linear mean reverting process. The author demonstrates that the presence of transaction costs induces non-linear adjustments of block trade prices.
VL  - 44
IS  - 2
SN  - 0144-3585
DO  - 10.1108/JES-03-2016-0050
UR  - https://doi.org/10.1108/JES-03-2016-0050
AU  - Gregoriou Andros
PY  - 2017
Y1  - 2017/01/01
TI  - Modelling non-linear behaviour of block price deviations when trades are executed outside the bid-ask quotes
T2  - Journal of Economic Studies
PB  - Emerald Publishing Limited
SP  - 206
EP  - 213
Y2  - 2024/04/25
ER  -