A Study On The Discounted Phenomenon Of Bulk Stock Trading In China

As institutional investors rapidly increase their share in the security market of China, their need for block trading is increasing too. Also, block trading is now the channel for the non-tradable stocks reduction. So we urgently need a good block trading mechanism. This paper reviews the history of block trading in China, then summarizes the current status of block trading, and analysis the obvious discount phenomenon. Liquidity and poor information communication can cause the discount of block trading. The motivation to sell the restricted shares and avoid tax also can cause the discount trading. And some discount block trading may involve in interest transfer.The data of2010from Shen Zhen Exchange was not completely support the liquidity discount theory, but still find the discount rate is related to the stock price volatility and the liquidity of the stock. In addition, the empirical results also show that the discount is related with the participants, the time, the place and some other factors of the transactions.Although the price of block trading has nothing to do with the closing price and the index of the trading day, it will affect the price the day after that. This paper studies the relationship between expected return of the stock and the discount rate based on CAPM, but there are not enough data and the results are not all significant.Compare to the overseas exchanges, such like the NYSE, our current block trading mode has many problems:poor information communication, small scale and so on, the block trading fell into a vicious cycle. Finally this paper gives some suggestions to the improvement of the block trading system.