Trading rules, large blocks and the speed of price adjustment

Abstract

In this paper large block stock transactions are examined in the context of a trading rule devised by Grier and Albin. The study makes use of the actual intra-day history of stock transactions. Considerable effort is taken to correctly incorporate the effects of transaction costs on trading rule profits and evidence is presented on the sensitivity of such profits to variations in these costs. The use of intra-day prices yields results consistent with the weak form of the efficient markets hypothesis and provides important evidence on the speed of price adjustment.