Information Acquisition in Dealer Markets: Evidence from Chinese Block Trades

Abstract

Using proprietary account data, we study the intermediation of blocks sold by insiders. We find that dealers acquire information during the negotiation process, which they exploit when selling the shares on the exchange. Prior to a 2017 regulatory change, dealers unwound insider blocks more quickly than non-insider blocks, particularly when future stock returns are less favorable. These shares were primarily sold to small retail investors. Evidence from message boards suggests that the sentiment of these investors could have been manipulated. The 2017 regulation reduced excess dealer profits on insider blocks and curtailed the exploitation of retail investors.

Keywords

Tags of Social Finance