Does price limit improve price discovery? Evidence from IPO market in a quasi-natural experiment

Yuchen Wang, Xiaping Cao, Xiaoming Wang and Sili Zhou

Pacific-Basin Finance Journal, 2023, vol. 82, issue C

Abstract: The two major Chinese stock exchanges imposed a new trading rule with a price-move limit of 44% on the first trading day for IPOs after 2013. Following this quasi-natural experiment, market sentiment on IPOs drastically rises, resulting in extreme price run-up in initial trading days. Newly listed stocks under the trading rule experience greater illiquidity, higher turnover and volatility than earlier ones. Account-level data from the Shanghai Stock Exchange shows that following the new rule, net buyers of IPO change from institutional to retail investors. The evidence suggests that this price limit delays price discovery by arousing sentiment and crowding out informed investors.

Keywords: Initial public offering; China; Price limit; Price discovery (search for similar items in EconPapers)
JEL-codes: G20 G24 G32 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:82:y:2023:i:c:s0927538x23002317

DOI: 10.1016/j.pacfin.2023.102160

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