Price impact asymmetry of institutional trading in Chinese stock market

TL;DR

This study examines the asymmetric price impact of institutional trading in the Chinese stock market, revealing that sales generally have a larger impact than purchases, especially during market downturns, and explores factors influencing this asymmetry.

Contribution

It provides a detailed analysis of price impact asymmetry in Chinese stocks and introduces a new variable to explain order book effects on impact.

Findings

Institutional sales have larger price impact than purchases in most stocks.

Price impact asymmetry is influenced by market conditions and trend direction.

A new order book variable partially explains impact differences.

Abstract

The asymmetric price impact between the institutional purchases and sales of 32 liquid stocks in Chinese stock markets in year 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 larger impact of institutional purchases only exists in few stocks with primarily increasing tendencies. We further study the mean return of trades surrounding institutional transactions, and find 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.