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Do price limits hurt the market?

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  • Chia-Hsuan Yeh
  • Chun-Yi Yang

Abstract

Under an artificial stock market composed of bounded-rational and heterogeneous traders, this paper examines whether or not price limits generate the negative effects on the market. Through testing the volatility spillover hypothesis, the delayed price discovery hypothesis, and the trading interference hypothesis, we find that no evidence of volatility spillover is observed. However, the phenomena of delayed price discovery and trading interference indeed exist, and their significance depends on the level of the price limits. Copyright Springer-Verlag Berlin Heidelberg 2013

Suggested Citation

  • Chia-Hsuan Yeh & Chun-Yi Yang, 2013. "Do price limits hurt the market?," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 8(1), pages 125-153, April.
    • Handle: RePEc:spr:jeicoo:v:8:y:2013:i:1:p:125-153
    DOI: 10.1007/s11403-012-0107-4
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    3. Leal, Sandrine Jacob & Napoletano, Mauro, 2019. "Market stability vs. market resilience: Regulatory policies experiments in an agent-based model with low- and high-frequency trading," Journal of Economic Behavior & Organization, Elsevier, vol. 157(C), pages 15-41.
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    6. Noemi Schmitt & Ivonne Schwartz & Frank Westerhoff, 2022. "Heterogeneous speculators and stock market dynamics: a simple agent-based computational model," The European Journal of Finance, Taylor & Francis Journals, vol. 28(13-15), pages 1263-1282, October.
    7. repec:spo:wpmain:info:hdl:2441/6ummnc8nko827b2luohnctekk7 is not listed on IDEAS
    8. 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.
    9. Sandrine Jacob Leal & Mauro Napoletano, 2017. "Market Stability vs. Market Resilience: Regulatory Policies Experiments in an Agent-Based Model with Low- and High-Frequency Trading," Post-Print hal-01768876, HAL.
    10. Xiao, Yuewen & Zheng, Xinwei & Wang, Chengsi, 2024. "Price limit hits in the Chinese fund market: Determinants and post-hit performance," International Review of Economics & Finance, Elsevier, vol. 89(PA), pages 70-82.
    11. Chong, Terence Tai Leung & Kwok, Stanley, 2019. "The Impact of Shanghai-Hong Kong Stock Connect on the Effectiveness of Price Limits in the Chinese Stock Market," MPRA Paper 92185, University Library of Munich, Germany.
    12. Yanxin Liu & Huajiao Li & Jianhe Guan & Xueyong Liu & Yajie Qi, 2019. "The role of the world’s major steel markets in price spillover networks: an analysis based on complex network motifs," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 14(4), pages 697-720, December.
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    More about this item

    Keywords

    Price limits; Artificial stock market; Agent-based modeling; Genetic programming; D83; D84; G11; G12;
    All these keywords.

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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