Does the London Stock Exchange require an upstairs market? Evidence from block trades
Abstract
Purpose
The purpose of this paper is to test if the empirical relationship between the size of trades and market liquidity can be pooled across different block sizes on the London Stock Exchange (LSE).
Design/methodology/approach
The authors use pooling and non-pooling econometric tests in a panel framework.
Findings
When the authors differentiate between various block sizes, the authors find that for trades in excess of 50,000 shares, there is a positive association between the size of the trade and the bid-ask spread, due to a lack of liquidity in the financial market. The results provide strong evidence that an upstairs market may be required in order to provide liquidity for large block trades on the LSE.
Originality/value
This is the first study to directly test if the LSE requires an upstairs market to provide liquidity for large trade transactions.
Keywords
Acknowledgements
JEL Classification — G10, G14
Citation
Gregoriou, A. (2016), "Does the London Stock Exchange require an upstairs market? Evidence from block trades", Journal of Economic Studies, Vol. 43 No. 3, pp. 447-457. https://doi.org/10.1108/JES-07-2014-0122
Publisher
:Emerald Group Publishing Limited
Copyright © 2016, Emerald Group Publishing Limited