Price Impact of Block Trades: New Evidence from downstairs trading on the World's Largest Carbon Exchange

We examine the determinants of the price impact of block trades on the European Climate Exchange (ECX) using data from Phase II of the European Union Emissions Trading Scheme (EU-ETS), over the time period 2008-2011. Block trading on the ECX induces less price impact than in equity markets and a large proportion of the effects contradict the previous literature. Wider bid-ask spreads and volatility are characterised by smaller price impact. Larger levels of price impact are more likely to occur during the middle of the trading day than during the first or the final hours. Purchase block trades induce relatively smaller price impact on a price run-up while sell block trades exhibit larger price impact on a price run-up.