Andrade, Chang, and Seasholes examine the relationship between trading shocks and asset prices.

• Position: Conferences - Brief Article

Andrade, Chang, and Seasholes examine the relationship between trading shocks and asset prices. They outline a simple market-clearing model in which some investors place orders that are uncorrelated with asset fundamentals. Their empirical results document pervasive price pressure at a daily, weekly, and monthly frequency. The authors sort stocks into deciles based on trading shocks. Initial distortions in the extreme deciles are over 200bp and prices take five weeks to mean-revert back to pre-shock levels. The model predicts that trading in one stock can affect...