THE UPSTAIRS MARKET FOR LARGE-BLOCK TRANSACTIONS - ANALYSIS AND MEASUREMENT OF PRICE EFFECTS

This article develops a model of the upstairs market where order size, beliefs, and prices are determined endogenously. We test the model's predictions using unique data for 5,625 equity, trades during the peri od 1985 to 1992 that are known to be upstairs transactions and are ide ntified as either buyer or seller initiated We find that price movemen ts prior to the trade date are significantly positively related to tra de size, consistent with information leakage as the block is ''shopped '' upstairs. Further, the temporary price impact or liquidity effect i s a concave function of order size, which may result from upstairs int ermediation.