Studiesofthepricereactiontolargeblocktradesonthefloor
of the exchange conclude that prices adjust within a few
minutesofsuchtrades.Anearlystudyexaminedthespeedof
thepricereactionbylookingatthereturnsaninvestorcould
makebybuyingstockrightaroundtheblocktradeandselling
later.
14 Theauthors estimatedthereturns asa function ofhow
manyminutesaftertheblocktradean investortraded,and
found thatonly trades madewithin a minute of theblock
trade had a chance of makingexcess returns. (See Figure
14.2.)Putanotherway,pricesadjustedtotheliquidityeffects
oftheblocktradewithinfiveminutesoftheblock.Whilethis
mayreflect thefact that these were blocktrades on large
stocksontheNYSE,itisstillfairlystrongevidenceofthe
capacityofmarketstoadjustquicklytoimbalancesbetween
demand and supply.
FIGURE14.2AnnualizedReturnsfromBuyingafterBlock
Trades