Price impact of block trades: The curious case of downstairs trading in the EU emissions futures market

Using high-frequency data from the European Climate Exchange (ECX), we examine the determinants of price impact of €21 billion worth of block trades during 2008-2011 in the European carbon market. We find that 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, specifically the four-hour period between 11am and 3pm, than during the first or final hours. Purchase block trades induce relatively smaller price impact on price run-up, while sell block trades exhibit larger price impact on price run-up. We conclude that block trades on the ECX induce less price impact than in equity or conventional futures markets, and that a significant proportion of the effects contradict findings on block trades in those markets; thus, we provide the first evidence of the curious bent to block trading in the EU Emissions Trading Scheme (EU-ETS).