Abstract
This article examines the predictors of price limit hits and post-hit market behaviors in the Chinese fund market. We show that macroeconomic news, past market returns, lagged limit hit dummies, and lagged price deviations have significant predictive powers for limit hits. We find that there is asymmetry between upper and lower limits, and between positive news and negative news. Furthermore, our tests of post-hit market dynamics provide evidence of volatility spillover after news upper-limit hits and no-news lower-limit hits. We find delayed price discovery except for no-news lower-limit hits, and a strong short-lived trading interference effect for news lower-limit hits. The price deviation is larger after news lower-limit hits but smaller after news upper-limit hits.
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