Journal
PACIFIC-BASIN FINANCE JOURNAL
Volume 74, Issue -, Pages -Publisher
ELSEVIER
DOI: 10.1016/j.pacfin.2022.101778
Keywords
Price limit; Trading rule; Microstructure; Market quality
Categories
Funding
- National Natural Science Foundation of China (NSFC) project [71771171, 71790594, 72001156]
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The daily price limit in the ChiNext market was changed from 10% to 20% in 2020. We used the difference-in-difference (DID) approach to examine the impact of this price limit change on firm-level market quality indicators. The results showed that the implementation of the new price limit range significantly improved market liquidity and increased market volatility and the likelihood of informed trading.
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.
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