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Do price limits hurt the market?

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  • Chia-Hsuan Yeh

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  • Chun-Yi Yang

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Abstract

Under an artificial stock market composed of bounded-rational and heterogeneous traders, this paper examines whether or not price limits generate the negative effects on the market. Through testing the volatility spillover hypothesis, the delayed price discovery hypothesis, and the trading interference hypothesis, we find that no evidence of volatility spillover is observed. However, the phenomena of delayed price discovery and trading interference indeed exist, and their significance depends on the level of the price limits. Copyright Springer-Verlag Berlin Heidelberg 2013

Suggested Citation

  • Chia-Hsuan Yeh & Chun-Yi Yang, 2013. "Do price limits hurt the market?," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 8(1), pages 125-153, April.
  • Handle: RePEc:spr:jeicoo:v:8:y:2013:i:1:p:125-153 DOI: 10.1007/s11403-012-0107-4
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    References listed on IDEAS

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    Cited by:

    1. Gao-Feng Gu & Xiong Xiong & Hai-Chuan Xu & Wei Zhang & Yong-Jie Zhang & Wei Chen & Wei-Xing Zhou, 2017. "An empirical behavioural order-driven model with price limit rules," Papers 1704.04354, arXiv.org.

    More about this item

    Keywords

    Price limits; Artificial stock market; Agent-based modeling; Genetic programming; D83; D84; G11; G12;

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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