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The effect of relaxing daily price limit: Evidence from the ChiNext market of China

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  • Wan, Xiaoyuan
  • Zhang, Jiachen

Abstract

On August 24, 2020, the daily price limit for stocks listed on the ChiNext market is relaxed from 10% to 20%. We conduct an event study and find that stock returns tend to be positive upon the widening of daily price limit. Moreover, the relaxation of daily price limit has no significant effect on price efficiency but significantly improves liquidity and induces higher return volatility.

Suggested Citation

  • Wan, Xiaoyuan & Zhang, Jiachen, 2022. "The effect of relaxing daily price limit: Evidence from the ChiNext market of China," Economics Letters, Elsevier, vol. 215(C).
    • Handle: RePEc:eee:ecolet:v:215:y:2022:i:c:s0165176522001318
    DOI: 10.1016/j.econlet.2022.110509
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    References listed on IDEAS

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    1. Lien, Donald & Hung, Pi-Hsia & Zhu, Jia-De & Chen, Yi-Hsuan, 2019. "Price limit changes and market quality in the Taiwan Stock Exchange," Pacific-Basin Finance Journal, Elsevier, vol. 55(C), pages 239-258.
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    4. Berkman, Henk & Lee, John Byong Tek, 2002. "The effectiveness of price limits in an emerging market: Evidence from the Korean Stock Exchange," Pacific-Basin Finance Journal, Elsevier, vol. 10(5), pages 517-530, November.
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    10. Kenneth A. Kim & Haixiao Liu & J. Jimmy Yang, 2013. "Reconsidering Price Limit Effectiveness," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 36(4), pages 493-518, December.
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    Cited by:

    1. Jia, Shaoqing & An, Yunbi & Yang, Liuyong & Zhou, Fangzhao, 2024. "Price limit relaxation and stock price crash risk: Evidence from China," Finance Research Letters, Elsevier, vol. 59(C).
    2. Jin, Liwei & Yuan, Xianghui & Li, Xiang & Ma, Huanglong & Lian, Feng, 2022. "Would widening price limits improve the efficiency of price discovery?," Finance Research Letters, Elsevier, vol. 50(C).
    3. Tang, Siyuan, 2023. "Price limit performance: New evidence from a quasi-natural experiment in China's ChiNext market," International Review of Financial Analysis, Elsevier, vol. 89(C).

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    More about this item

    Keywords

    Daily price limit; Stock valuation; Price efficiency; Liquidity; Volatility;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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