The impact of price limit system on the comprehensive quality of the stock market: Research on long-term and short-term effects based on submarkets

Abstract

We construct a difference-in-differences simultaneous equation to study the long-term impact of price limit system on the comprehensive quality of the stock market. Moreover, we use event study method to further test short-term effect. Results show that after the setting of price limit system in China, the quality of total market and the Shenzhen stock market improves to a certain extent. But for the Shanghai stock market, in the long term, the setting of price limit system can reduce liquidity and market efficiency, in the short term, it could cause trading interference effect and price discovery delay effect; nonetheless, it could stabilize volatility and suppress volatility spillover effect.

Keywords

• price limit system
• comprehensive quality of stock market
• difference-in-differences simultaneous model
• event study method
• long-term and short-term effects
• G10