Price Effect Of Block Trading On Secondary Market

The development of block trading system in China starts from 2002 which not only activate the equity transfer market and reduce the transaction costs, but also promote the integration of market entities. Block trading system is a good supplement to the common trading system, and it plays a role in the microstructure theory. By studying the block trading system, this paper aims to provide a reference for the development and improvement of China’s block trading system and enrich empirical studies.Current studies on block trading are mainly about pricing and price effect. Pricing concerns the level of discount rate in block trading and determine a reasonable rate through pricing model. Price effect concerns the abnormal returns in the secondary stock market after block trading. This paper is about the price effect of block trading, which aims to explain the information contained in block trading and study the price effect on the secondary market from the aspects of transaction price and participants.Firstly, this paper makes a statistical description of the development of China’s block trading market, which shows that the discount rate arises significantly after 2008, GEM and SME are more active than the main board market and the share of institutional investors in the block trading market increases dramatically in 2013. Then, this paper builds several hypothesis on the basis of theoretical analysis and finally get following the conclusion after empirical tests:Block purchases of large shareholders has a positive price effect; Block sells of large shareholders due to liquidity pressure or pessimism has a significant negative price effect; The higher the discount rate is, the greater the negative effect is; Block discount and premium trading has an asymmetry price effect; Block sells of institutional investors has a negative price effect; Block discount purchases of large shareholders has a negative price effect, but less than block sells’; Block purchases at premium or fair price has no obvious price effect.