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The impact of price limit system on the comprehensive quality of the stock market: Research on long-term and short-term effects based on submarkets

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  • Zhuwei Li
  • Xiaoshan Wang
  • Chenyang Kang

Abstract

We construct a difference-in-differences simultaneous equation to study the long-term impact of price limit system on the comprehensive quality of the stock market. Moreover, we use event study method to further test short-term effect. Results show that after the setting of price limit system in China, the quality of total market and the Shenzhen stock market improves to a certain extent. But for the Shanghai stock market, in the long term, the setting of price limit system can reduce liquidity and market efficiency, in the short term, it could cause trading interference effect and price discovery delay effect; nonetheless, it could stabilize volatility and suppress volatility spillover effect.

Suggested Citation

  • Zhuwei Li & Xiaoshan Wang & Chenyang Kang, 2022. "The impact of price limit system on the comprehensive quality of the stock market: Research on long-term and short-term effects based on submarkets," Cogent Economics & Finance, Taylor & Francis Journals, vol. 10(1), pages 2106635-210, December.
    • Handle: RePEc:taf:oaefxx:v:10:y:2022:i:1:p:2106635
    DOI: 10.1080/23322039.2022.2106635
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    Cited by:

    1. Jin, Shaorong & Zhou, Chaobo & Peng, Huan, 2023. "Does price limit reduce stock price volatility on the limit up and down day?," Finance Research Letters, Elsevier, vol. 58(PA).

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