Abstract: This paper, based on market environment, studies the market effect of large shareholders'reducing holdings and determinants in Chinese capital market.It is found that in a short-term, large shareholders'reduction really has a wealth effect.The degree of large shareholders' reduction has a significant negative influence on the degree of wealth effect, especially in an increasing market environment.The investing value of companies reduced also significantly affects the degree of wealth effect, however, the results are not consistent.The investors'preference reversal is influenced by complex factors and their rationality is limited.