What is one potential reason for a blockage discount?

A blockage discount primarily arises from the challenges and limitations that occur when large blocks of stock are sold in the market. When an investor wishes to liquidate a significant number of shares, the usual market dynamics might not support the immediate sale without affecting the stock price.

Low volume of market activity is a key factor in this scenario; if there is insufficient trading volume, the large number of shares available can push prices downward as potential buyers may be scarce. This creates a situation where the seller cannot sell all their shares at the prevailing market price without causing a drop in value, thus necessitating a discount on the price to facilitate the sale of a large block.

In contrast, high market liquidity, increased investor interest, and stable market conditions would generally work to support better sale prices and diminish the need for a blockage discount, making them less relevant to this concept.