Price Limits and Stock Market Volatility in China

This paper explores the effects of price limits on the stock market of China during global market turmoils. The characteristics of stocks that hit the price limits more frequently under market turmoil are investigated. It is found that the price limit system increases volatility significantly during...

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Bibliographic Details
Published inIDEAS Working Paper Series from RePEc
Main Authors Wang, Dingyan, Chong, Terence Tai-Leung, Chan, Wing Hong
Format Paper
LanguageEnglish
Published St. Louis Federal Reserve Bank of St. Louis 01.01.2014
Subjects
Securities markets
Stock exchanges
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Summary:This paper explores the effects of price limits on the stock market of China during global market turmoils. The characteristics of stocks that hit the price limits more frequently under market turmoil are investigated. It is found that the price limit system increases volatility significantly during the downward price movement. Moreover, price limit delays the efficient price discovery for upward and downward price movements. Finally, actively-traded stocks with a higher positive correlation with the entire market in the property industry hit the price limits more frequently.