Abstract

Price Impact
and Profit of Large Xetra-Traders

A.-K. Kampovsky and S. Trautmann

Universität Mainz

We use data uniquely available from the Trading Surveillance Unit of the Frankfurt Securities Exchange (Handelsüberwachungsstelle der Frankfurter Wertpapierbörse) to analyse the price impact and profit of all stock traders trading in 11 liquid DAX stocks and 5 less liquid MDAX stocks via Deutsche Börse AG`s electronic trading platform Xetra. Although in strategic models a monopolist informed trader may camouflage his trading activity by making several small-sized trades rather than one large trade, it might be optimal to choose a large trade size when there are multiple informed traders. The same is true for an uninformed stock price manipulator who tries to establish a trend-creating trading strategy. In contrast to other empirical studies, we find (1) that the price response to buy and sell orders is almost symmetric making it harder to profit from trade-based price manipulation, and (2) that the assumption of a linear impact of trade size on prices (which is often used in theoretical papers) is acceptable. Furthermore, our results suggest that there is a weak relationship between mean trade size and profit margins. Mean profit margins of daytraders are not significantly different except for medium and large trade sizes.