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- Title
RECONSIDERING PRICE LIMIT EFFECTIVENESS.
- Authors
Kim, Kenneth A.; Liu, Haixiao; Yang, J. Jimmy
- Abstract
We study China's experience with price limits by comparing a period with price limits to a period without price limits. Although many prior studies document costs of price limits, we show benefits of price limits. We find that price limits can facilitate price discovery, moderate transitory volatility, and mitigate abnormal trading activity. A tighter price limit for poorly performing stocks can also moderate volatility. We do not find evidence of a magnet effect, which suggests that prices gravitate to limit prices. Finally, we find evidence that price limits can facilitate market recovery following crashes.
- Subjects
PRICES; ECONOMIC efficiency; MARKET volatility; ECONOMIC recovery; ECONOMIC research; STOCKS (Finance)
- Publication
Journal of Financial Research, 2013, Vol 36, Issue 4, p493
- ISSN
0270-2592
- Publication type
Article
- DOI
10.1111/jfir.12021