Abstract
AbstractThis study uses a group of specially treated stocks to examine the effect of daily price limits in the Chinese stock market. We show that lower price limits significantly reduce liquidity and widen spreads. These results remain consistent when using difference‐in‐differences regressions with propensity score matching and after conducting regression discontinuity analyses. The findings are more prominent for firms experiencing lower‐limit hits, with higher disclosure quality and lower probability of informed trading before the limit changes. These findings suggest that restrictive price limits cause unexpected behaviour of informed traders, enhance information asymmetry, reduce stock liquidity, and hinder price discovery process.
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 callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
