Price Limit Performance Of A-share

Abstract:The performance of price limit is a bone of contention for years. Conclusions of this question are important both for academia and regulators. Based on previous researches and taking the opportunity of trading as a breakthrough point, this paper constructs a new liquidity measurement, by which we can divide the price limit days into two types-high liquidity ones and low liquidity ones, then test "the three hypotheses" respectively-volatility spillover hypothesis, delayed price discovery hypothesis and trading interference hypothesis. The result supports the liquidity is an important factor to trading activities after price limit days, but not the only one. And maybe due to the lack of short-selling mechanism of A-Share, the liquidity has more impact on upward limits than downward limits. Although related researches and ours partially support these hypotheses, we do NOT think it is enough to give the last judgment of price limit as good or bad. So we are prone to maintain the status quo and improve it by micro-adjusting.