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Would widening price limits improve the efficiency of price discovery?

Author

Listed:
  • Jin, Liwei
  • Yuan, Xianghui
  • Li, Xiang
  • Ma, Huanglong
  • Lian, Feng

Abstract

Based on a quasi-natural experiment of widening price limits on GEM (Growth Enterprise Market) stocks of China, we examine how to price limit affects price discovery using data on GEM and Main Board stocks. Price discovery efficiency is measured in terms of both speed and accuracy. We find that widening the price limit enhances price discovery efficiency significantly, and the results are robust, using the DID (Differences-in-Differences) model.

Suggested Citation

  • 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).
    • Handle: RePEc:eee:finlet:v:50:y:2022:i:c:s1544612322004135
    DOI: 10.1016/j.frl.2022.103208
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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. Liwei Jin & Xianghui Yuan & Li Peiran & Hailun Xu & Feng Lian, 2023. "Option features and price discovery in convertible bonds," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 43(3), pages 384-403, March.

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    More about this item

    Keywords

    Variance ratio; Price discovery; WPC method; GEM;
    All these keywords.

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • 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

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