Performance of Price Limits: Evidence from Cross-Listed Stocks in China

doi:10.1007/s12204-016-1719-y

Abstract

Abstract: Previous literature on price limit offers mixed empirical evidence on the effectiveness of price limits. This study complements the literature by providing a quasi-natural experiment to study the performance of price limit. We examine the effectiveness of price limit rule using cross-listed stocks in the Chinese stock markets and Hong Kong stock market. We find that the influence of price limit becomes weaker as limit-hitting stocks are traded more actively. Among stocks with high trading activity, the delay of efficient price discovery, the volatility spillover and the trading interference become statistically insignificant. This challenges the views of price limit critics. Additionally, we find that the effect of price limits on the trading is asymmetric for A-shares in the upward and downward price movements.

Key words: price limit| A-shares| H-shares| cross-listing

摘要： Previous literature on price limit offers mixed empirical evidence on the effectiveness of price limits. This study complements the literature by providing a quasi-natural experiment to study the performance of price limit. We examine the effectiveness of price limit rule using cross-listed stocks in the Chinese stock markets and Hong Kong stock market. We find that the influence of price limit becomes weaker as limit-hitting stocks are traded more actively. Among stocks with high trading activity, the delay of efficient price discovery, the volatility spillover and the trading interference become statistically insignificant. This challenges the views of price limit critics. Additionally, we find that the effect of price limits on the trading is asymmetric for A-shares in the upward and downward price movements.

关键词: price limit| A-shares| H-shares| cross-listing

CLC Number:

F 830

LU Liangliang (卢亮亮). Performance of Price Limits: Evidence from Cross-Listed Stocks in China[J]. Journal of shanghai Jiaotong University (Science), 2016, 21(2): 247-256.

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