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The Effect of Extremely Small Price Limits: Evidence from the Early Period of the Chinese Stock Market

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  • Xinyue Dong
  • Honggang Li

Abstract

This article studies the effect of the extremely small price limits on market quotation with an agent-based model. Considering the early government intervention in the Chinese stock market as a natural experiment, we provide explanations for exotic empirical features of the Chinese stock market in specific periods. We argue that such atypical market results from the behavioral consensus among heterogeneous traders, which is facilitated by the extremely small price limits. Paradoxically, the price limits designed to stabilize prices actually exacerbate price volatility from a longer-term perspective.

Suggested Citation

  • Xinyue Dong & Honggang Li, 2019. "The Effect of Extremely Small Price Limits: Evidence from the Early Period of the Chinese Stock Market," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 55(7), pages 1516-1530, May.
    • Handle: RePEc:mes:emfitr:v:55:y:2019:i:7:p:1516-1530
    DOI: 10.1080/1540496X.2018.1559141
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    Cited by:

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    2. Ersan, Oguz & Simsir, Serif Aziz & Simsek, Koray D. & Hasan, Afan, 2021. "The speed of stock price adjustment to corporate announcements: Insights from Turkey," Emerging Markets Review, Elsevier, vol. 47(C).

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