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The Performance of Price Limits in China Stock Market

Author: LiangMin
Tutor: WangChaoZuo
School: Ningbo University
Course: Finance
Keywords: price limits volatility spillover effect delayed price discovery effect liquidity disturbing effect
CLC: F832.51
Type: Master's thesis
Year: 2011
Downloads: 46
Quote: 0
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Abstract


The policy of price limits is widely adopted in the security markets all around the world. Many researches have been conducted to study the performance of price limits, but there is no constant result. The measure of price limits has been adopted in China since December 16, 1996 to control the volatility of stock markets, and the range of price limits of ST (Special Treatment) stocks and non-ST stocks are different. For non-ST stocks, the range is±10%, and for ST stocks, the range is±5%. It is a focus in academic area to discuss whether this measure promotes the efficiency of security markets and how much the range of price limits should be set.This paper introduces different measures of price stabilizing in security markets, and compares the development of price limits in China stock markets with the measure in other countries and areas. Then this paper analyzes the mechanism of price limits and price discovering. Then this paper adopts the methods of event study and comparison method to do an empirical research on three effects to study the performance of price limits: volatility spillover effect, delayed price discovery effect and liquidity disturbing effect.This paper finds that the performances of up-limits and down-limits are different, so it is suggested that the ranges of up-limits and down-limits could be set unsemmetrically. And it is also discovered that the performances of price limits with different ranges are different. The up-limits of non-ST stocks with the range of 10% sacrifice the efficiency of markets while the down-limits don’t, but both the up-limits and down-limits of ST stocks affect the market. Therefore, the ranges of price limits for both non-ST and ST stocks should be adjusted.

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CLC: > Economic > Fiscal, monetary > Finance, banking > China's financial,banking > Financial market
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