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Could increasing price limits reduce up limit herding? Evidence from China's capital market reform

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  • Ma, Yu
  • Qian, Wenyu
  • Luan, Zhiqian

Abstract

On August 24, 2020, trading rules of Shenzhen Stock Exchange's ChiNext board in China were amended to set ±20% price limits. We conducted an event study to reveal whether and how investors’ behavior should change after the increased price limits’ implementation. The results show that after the implementation of the new trading rules, investors flocked to the ChiNext board, resulting in a surge in turnover in this board. ChiNext leading stocks demonstrated significant cumulative abnormal returns (CAR) versus both STAR board and main board. In general, the new trading rules has produced a stronger up limit herding effect in ChiNext board.

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  • Ma, Yu & Qian, Wenyu & Luan, Zhiqian, 2021. "Could increasing price limits reduce up limit herding? Evidence from China's capital market reform," Finance Research Letters, Elsevier, vol. 42(C).
    • Handle: RePEc:eee:finlet:v:42:y:2021:i:c:s1544612320317232
    DOI: 10.1016/j.frl.2020.101909
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    References listed on IDEAS

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    Cited by:

    1. Bing, Tao & Cui, Yian & Min, Ying & Xiong, Xiong, 2022. "Price limit changes and market quality: Evidence from China," Finance Research Letters, Elsevier, vol. 48(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. Zhang, Xiaotao & Wang, Ziqiao & Hao, Jing & He, Feng, 2022. "Price limit and stock market quality: Evidence from a quasi-natural experiment in the Chinese stock market," Pacific-Basin Finance Journal, Elsevier, vol. 74(C).
    4. 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

    price limits; herding effect; trading rules; ChiNext board;
    All these keywords.

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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