 Limit-hitting exciting effects: Modeling jump dependencies in stock markets adhering to daily price-limit rulesJian Chen and Shuyuan Qi Journal of Banking & Finance, 2024, vol. 163, issue C Abstract: Price limits are widely implemented in stock markets worldwide; however, they are rarely considered in financial models. In this study, we propose a model specifically designed for asset prices that adhere to daily price-limit mechanisms. Our model captures the interdependence among limit-hitting events and other small price jumps by using a multivariate mutually-exciting point process. It is applicable to any stock market with a multi-layer price limit mechanism. By analyzing data from all publicly listed A-share stocks in China from 2007 to 2021, we demonstrate that our model outperforms other classic models in terms of goodness of fit. Additionally, we find that limit-hitting jumps, as opposed to inconspicuous small price jumps, have a higher propensity to attract investors' attention and result in subsequent price jumps. We further construct a clustering index based on the model parameters and investigate its determinants. Keywords: Price limits; Jump clustering; Bayesian inference; Hawkes process; Stochastic volatility (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:163:y:2024:i:c:s0378426624001018 DOI: 10.1016/j.jbankfin.2024.107184 Access Statistics for this article Journal of Banking & Finance is currently edited by Ike Mathur More articles in Journal of Banking & Finance from Elsevier |
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