Abstract
This paper reinvestigates the effect of price limits after controlling for the characteristics of stocks that may affect stock price behavior. It is found that price limits are ineffective. Specifically, price limits cause volatility spillover on subsequent days and prevent prices from reaching their equilibrium level effectively. The effect of price limits on trading interference is asymmetric. Up-limit hits are accompanied with trading interference, while down-limit hits are not. Besides, the imposition of price limits can have more adverse effects on volatile stocks, actively traded stocks, small capitalization stocks, and growth stocks.
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