Daily price limits and destructive market behavior

By Tingqiang Chen, Zhenyu Gao, Jibao He, Wenxi Jiang. Journal of Econometrics, 2019

114 citations recorded by the source corpus.

We 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.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/e7556bd79c0dacf4f4eb71707afecf29aaf41522

Citations in the corpus

• Risks in China's Financial System (2018, unknown): “Policies and regulations can deliver unintended consequences, some of which may be entirely counter-productive, e.g., Hachem and Song (2016, 2017), Cai et al. (2017), Chen et al. (2017) and Chen, Petukhov, and Wang (2017).”