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An Agent-Based Model for the Impact of Price Limit Changes on Market Quality

Author

Listed:
  • Xiong Xiong

    (College of Management and Economics, Tianjin University, Tianjin 300072, P. R. China)

  • Jinchi Liu

    (College of Management and Economics, Tianjin University, Tianjin 300072, P. R. China)

  • Zonghang Yang

    (��Shenzhen Stock Exchange, Shenzhen 518038, P. R. China)

  • Jiatong Han

    (��School of Finance, Tianjin University of Finance and Economics, Tianjin 300222, P. R. China)

Abstract

This paper constructs an artificial stock market, especially the description of Chinese stocks to form a benchmark model of this paper. Then, we examine the relationships between price limit changes and market quality in the Chinese stock market. We set up five boards in the model and adopt the current price limits of the A-share market. In terms of experimental design, this paper adjusts the price limit to explore the path of the reform of the price limit. We also cancel the price limit to explore the necessity of price limits in China’s A-share market. After simulations, the experimental results of this paper show that relaxing the price limit will improve market quality. When we adjust the price limit from 10% to 20%, market volatility increases slightly, market liquidity increases and market pricing efficiency improves. When we cancel the price limit, market volatility increases significantly, market liquidity increases and market pricing efficiency decreases significantly. Our study shows that it is necessary to implement the price limit policy in the Chinese market, and a moderate relaxation of the price range will improve the quality of the market.

Suggested Citation

  • Xiong Xiong & Jinchi Liu & Zonghang Yang & Jiatong Han, 2022. "An Agent-Based Model for the Impact of Price Limit Changes on Market Quality," International Journal of Information Technology & Decision Making (IJITDM), World Scientific Publishing Co. Pte. Ltd., vol. 21(06), pages 1777-1795, December.
    • Handle: RePEc:wsi:ijitdm:v:21:y:2022:i:06:n:s0219622022500286
    DOI: 10.1142/S0219622022500286
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    Citations

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    Cited by:

    1. Huang, Wenli & Zhou, Fengbo & Yu, Chenkang & Hu, Yue & Zhang, Hong & Xu, Yueling, 2023. "Momentum effect and contrarian effect in China's A-share market, under registration-based system," Pacific-Basin Finance Journal, Elsevier, vol. 81(C).
    2. Sun, Ping-Wen & Cai, Yingying, 2024. "Influence of a wider trading range on stock price efficiency: Evidence from ChiNext stocks in China," The North American Journal of Economics and Finance, Elsevier, vol. 70(C).
    3. Kou, Shubo & Ma, Xiyuan, 2024. "From Gambling to Gaming: The Crowding Out Effect," Finance Research Letters, Elsevier, vol. 59(C).
    4. 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).

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