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Price limit relaxation and stock price crash risk: Evidence from China

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  • Jia, Shaoqing
  • An, Yunbi
  • Yang, Liuyong
  • Zhou, Fangzhao

Abstract

This paper investigates the impact of price limit relaxation on stock price crash risk, based on the change in the daily price limit in the ChiNext market in August 2020. We find that the widening of price limits significantly reduces stock price crash risk. This result is robust to parallel trend and placebo tests. Furthermore, we show that widening price limits can help lower information asymmetry between informed and uninformed traders, thereby decreasing bad news hoarding and reducing stock price crash risk.

Suggested Citation

  • 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).
    • Handle: RePEc:eee:finlet:v:59:y:2024:i:c:s1544612323010875
    DOI: 10.1016/j.frl.2023.104715
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    References listed on IDEAS

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    1. Naresh Gopal & Ravi S. Mateti & Duong Nguyen & Gopala Vasudevan, 2024. "Stock buybacks and growth opportunities," Review of Quantitative Finance and Accounting, Springer, vol. 63(4), pages 1413-1429, November.

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