Daily Price Limits and Destructive Market Behavior
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AbstractWe use account-level data from the Shenzhen Stock Exchange to show that daily price limits, a widely adopted market stabilization mechanism, may lead to unintended, destructive market behavior: large investors tend to buy on the day when a stock hits the 10% upper price limit and then sell on the next day; and their net buying on the limit-hitting day predicts stronger long-run price reversal. We also analyze a sample of special treatment (ST) stocks, which face tighter 5% daily price limits, and provide a causal validation from comparing market dynamics before and after they are assigned the ST status.
Acceptance Date07/11/2017
All Author(s) ListTing Chen, Zhenyu Gao, Jibao He, Wenxi Jiang, Wei Xiong
Journal nameJournal of Econometrics
Year2019
Month1
Volume Number208
Issue Number1
PublisherElsevier
Pages249 - 264
ISSN0304-4076
eISSN1872-6895
LanguagesEnglish-United States

Last updated on 2019-10-12 at 06:12