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Pricing and information content of block trades on the Shanghai Stock Exchange

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  • Fan, Longzhen
  • Hu, Bill
  • Jiang, Christine

Abstract

We study the pricing mechanisms and information content of block trades on the Shanghai Stock Exchange (SSE) for the six year period from 2003 to 2009.There is an average of about 4% block discount, which is large in magnitude and statistically significant, reflecting compensation for locating counterparties and the cost of negotiating terms. We also examine permanent price impacts of the trades and find that discount block trades (DBTs) have significant negative permanent price impacts for various periods extended up to 60 trading days after the block trades. Conversely, premium block trades (PBTs) have small and statistically insignificant negative permanent price impacts, suggesting that buyers do not possess valuable private information. Finally, we classify the trades into buys and sells using a set of stricter rules and note similar results to those of DBTs and PBTs. Of additional note, block sells on stocks with expirations of restricted shares seem to have significant information content. As these trades are more likely to be originated from insiders, our results suggest that they strategically time the sale of these shares to maximize gains.

Suggested Citation

  • Fan, Longzhen & Hu, Bill & Jiang, Christine, 2012. "Pricing and information content of block trades on the Shanghai Stock Exchange," Pacific-Basin Finance Journal, Elsevier, vol. 20(3), pages 378-397.
    • Handle: RePEc:eee:pacfin:v:20:y:2012:i:3:p:378-397
    DOI: 10.1016/j.pacfin.2011.11.004
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    Cited by:

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    2. Yushu Zhu & Jennifer Gippel & Kathy Walsh, 2017. "Informed trading on debt covenant violations: the long and short of it," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 57(1), pages 289-315, March.
    3. Aktas, Osman Ulas & Kryzanowski, Lawrence, 2014. "Market impacts of trades for stocks listed on the Borsa Istanbul," Emerging Markets Review, Elsevier, vol. 20(C), pages 152-175.

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    More about this item

    Keywords

    Block trades; Permanent price impact; Information content; Shanghai Stock Exchange;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G3 - Financial Economics - - Corporate Finance and Governance

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