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Price limit and stock market quality: Evidence from a quasi-natural experiment in the Chinese stock market

Xiaotao Zhang, Ziqiao Wang, Jing Hao and Feng He

Pacific-Basin Finance Journal, 2022, vol. 74, issue C

Abstract: The daily price limit changed from 10% to 20% in the ChiNext market in 2020. This event can be considered a quasi-natural experiment of change in market trading mechanisms. We employ the difference-in-difference (DID) approach to test the effect of this price limit change on the firm-level market quality indicator. We find that the implementation of the new price limit range significantly improves market liquidity and increases market volatility and the probability of informed trading. Our findings remain robust to a parallel trends test, a placebo test, alternative matching, a regression-discontinuity design, and alternative measures.

Keywords: Price limit; Trading rule; Microstructure; Market quality (search for similar items in EconPapers)
JEL-codes: G10 G14 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1016/j.pacfin.2022.101778

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