Chinese Block Transactions and the Market Reaction

28 Pages Posted: 17 Apr 2009 Last revised: 18 Oct 2011

See all articles by Jiangze Bian

Jiangze Bian

University of International Business and Economics (UIBE)

Jun Wang

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance

Ge Zhang

Long Island University

Date Written: March 31, 2009

Abstract

This paper examines block transactions in Chinese equity market. We find that most of the block transactions are traded at prices at or below the closing price of the regular continuous auction market, and more than half are traded at or below the lowest price of the day. While the block transactions appear to be seller-initiated according to price, the market reaction is positive. The positive reaction is consistent with the buyer-certification hypothesis, that is, the fact that rational institutional buyers enter block trade indicates the buyers' assessment of undervaluation. This effect is stronger after April 20, 2008, when a new regulation is imposed to force large shareholders to use block trading platforms to dispose large quantity of shares.

Keywords: Block Trading, China, Buyer-certification Hypothesis, Market Reaction.

JEL Classification: G20

Suggested Citation

Bian, Jiangze and Wang, Jun and Zhang, Ge, Chinese Block Transactions and the Market Reaction (March 31, 2009). China Economic Review, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1370761

Jiangze Bian (Contact Author)

University of International Business and Economics (UIBE) ( email )

10, East Huixin Street, Chaoyang District
Beijing, 100029
China

Jun Wang

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance ( email )

17 Lexington Avenue
New York, NY 10010
United States

Ge Zhang

Long Island University ( email )

720 Northern Boulevard
Brookville, 11548-1327
United States

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