Abstract
We propose an empirical behavioral order-driven (EBOD) model with price limit rules, which consists of an order placement process and an order cancellation process. All the ingredients of the model are determined based on the empirical microscopic regularities in the order flows of stocks traded on the Shenzhen Stock Exchange. The model can reproduce the main stylized facts in real markets. Computational experiments unveil that asymmetric setting of price limits will cause the stock price to diverge exponentially when the up price limit is higher than the down price limit and to vanish vice versa. We also find that asymmetric price limits have little influence on the correlation structure of the return series and the volatility series, but cause remarkable changes in the average returns and the tail exponents of returns. Our EBOD model provides a suitable computational experiment platform for academics, market participants, and policy makers.
Highlights
The emerging Chinese stock market adopted the price limit mechanism on 2 January 1997 to refrain from speculative behaviors and stabilize the market
We introduce the divergence rate of the price to quantify the impacts of these asymmetric price limit rules
We note that the results obtained are trivial to some extent because they are mainly caused by the implicit assumption that the relative prices defined in Eq (2) have the same distribution for symmetric and asymmetric price limit settings
Summary
The emerging Chinese stock market adopted the price limit mechanism on 2 January 1997 to refrain from speculative behaviors and stabilize the market. The relative prices of buy market orders and sell limit orders are well defined by Eq (2)
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
