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Price limit and stock market quality: Evidence from a quasi-natural experiment in the Chinese stock market

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  • Zhang, Xiaotao
  • Wang, Ziqiao
  • Hao, Jing
  • He, Feng

Abstract

The daily price limit changed from 10% to 20% in the ChiNext market in 2020. This event can be considered a quasi-natural experiment of change in market trading mechanisms. We employ the difference-in-difference (DID) approach to test the effect of this price limit change on the firm-level market quality indicator. We find that the implementation of the new price limit range significantly improves market liquidity and increases market volatility and the probability of informed trading. Our findings remain robust to a parallel trends test, a placebo test, alternative matching, a regression-discontinuity design, and alternative measures.

Suggested Citation

  • Zhang, Xiaotao & Wang, Ziqiao & Hao, Jing & He, Feng, 2022. "Price limit and stock market quality: Evidence from a quasi-natural experiment in the Chinese stock market," Pacific-Basin Finance Journal, Elsevier, vol. 74(C).
    • Handle: RePEc:eee:pacfin:v:74:y:2022:i:c:s0927538x22000737
    DOI: 10.1016/j.pacfin.2022.101778
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    Cited by:

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    More about this item

    Keywords

    Price limit; Trading rule; Microstructure; Market quality;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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