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Albuquerque, Rui
Schroth, Enrique
Year of Publication: 
Series/Report no.: 
Tinbergen Institute Discussion Paper 11-029/2/DSF11
This paper investigates empirically the illiquidity of majority blocks of shares in the context of a search model of block trades. The search model incorporates two aspects of illiquidity, or search frictions. First, upon a liquidity shock, the incumbent blockholders may be forced to sell to a less efficient buyer. Second, a block liquidity sale may occur at a fire sale price. We conduct a structural estimation of the model using data on majority block trades in the U.S. The structural estimation is particularly useful in this exercise as it allows us to evaluate the counterfactual price that would result absent liquidity shocks. Our results help shed light into the size of the marketability discount, the control discount and an illiquidity-spillover discount we identify, and on the determinants of aggregate liquidity.
Block pricing
marketability discount
control transactions
search frictions
structural estimation
Document Type: 
Working Paper

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