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Price limits, informed trading, and information consumption

Author

Listed:
  • Luo, Yan
  • Ren, Haohan
  • Yang, Hao

Abstract

We use a policy change in the daily price limit rules in the Chinese stock market to examine the impacts of price limits on stock market reactions to corporate earnings announcements. We find that compared with the control stocks’ prices, the prices of stocks that experience a relaxation in price limits become more sensitive to corporate earnings surprises. Further analysis shows that more effective responses are likely associated with the increased trading intensity of nonretail investors and short sellers. Overall, we suggest that the relaxation of the price limit contributes to the incorporation of firm-specific information into stock prices.

Suggested Citation

  • Luo, Yan & Ren, Haohan & Yang, Hao, 2024. "Price limits, informed trading, and information consumption," Research in International Business and Finance, Elsevier, vol. 71(C).
    • Handle: RePEc:eee:riibaf:v:71:y:2024:i:c:s0275531924002095
    DOI: 10.1016/j.ribaf.2024.102416
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    More about this item

    Keywords

    Price limits; Earnings response coefficients; Informed trading;
    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
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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