Empirical Analysis On Formation Factors For Block Trading Discount In Chinese Stock Market And Its Effect On Stock Price

Block trading is the supplement to the general stock market trading mechanism, and it draws more and more attention in recent years with the development of stock market. The establishment of block trading system plays an important role in reducing the impact of large stock transactions on the secondary market, reducing transaction costs, improving financial liquidity and optimizing the allocation of resources. In recent years, the institutional investors have made extraordinary development, and its composition and structure have gradually become diversified with securities investment funds and securities companies mainly leading the security market. Besides, because market mergers, acquisitions and restructuring are becoming more frequent, there are more requirements of block trading. With the release of "Guidance on the Cancellation of Stock Sales for Listed Company" by Chinese Securities Regulatory Commission in 2008, more stock sales are transacted without limitation on the platform of block trading. Therefore, the study on block trading discount and its impact on price on the secondary stock market are significant for improving stock market and replenishing microstructure theory of financial market. It cannot only improve the price setting efficiency of block trading, but also provide strategic reference for investors. This paper is based on the background as above.The study on block trading shows that most of the transactions are made with discount, and there are few phenomena of premium. There is significant negative correlation for individual stock liquidity level and market liquidity level to block trading discount. There is significant negative correlation for control value to block trading discount. Besides, block trading is also related to individual stock price volatility, ownership structure, daily returns, profitability, total assets and transaction scale.The effect of block trading to the stock price on secondary stock market at different discount levels shows that there is effect of block trading on the stock price on secondary stock market. There is no temporary impact or permanent impact when buying in block trading system at a high premium; there is no temporary impact but permanent impact when buying in block trading system at a low premium; there is no temporary impact but permanent impact when selling in block trading system at low discount; there are temporary impact and permanent impact when selling at high discount. From the overall point of view, buying in block trading system has no temporary impact, and selling in block trading system has permanent impact.Combined with theoretical and empirical analysis, this paper provides recommendations on comprehensive consideration to the influence factors to block trading discount, improving the pricing mechanism of block trading system and strengthening the supervision to effective market.