An Empirical Study Of Price Limits Effect In A Stock Market

Price limits system comes from the foreign securities markets in early times. Itwas originally designed in order to maintain stability of the markets, prevent of panicbecause of the stock crash in financial crisis. But since1996year，the system hasbeen produced，there are lots of controversial in academy field. Controversy focusedon the volatility spillover effects, price delayed effects, and liquidity disturbancesthese three areas.This article through empirical analysis on these three effects in order to inspectthe price limit system, observe if the system has the ability to stabilize the stockprice，prevent overreaction in China’s A stock market，so that we can provide ascientific basis for policy makers to maintain the normal development of the financialmarkets.This article always carry out qualitative analysis and quantitative analysis as theresearch methods to inspect the three effects of normal stock in Shenzhen A stockmarkets. This paper select some data which are very representing in2007and2008when there is a large volatility shocks in stock markets. The years are close to now soit has comparative significance. For the volatility spillover effect, we using yield asthe index, then choose some stocks and build the EGARCH model to test thesignificance of parameters, so as to determine if there is volatility spillover effect. Asto delayed price discovery effect, first for grouping data, then divided into studygroup and comparison group.using Mann-Whitey U model to test the differencebetween groups. As to the liquidity effect, establish the liquidity index, and thenestablish the Var model. Through empirical analysis of data we get the followingconclusions:1、For Shenzhen A stock market, price limit system did not achieve the effect ofreducing fluctuations, but to a certain extent, have the volatility of the market. Inaddition, no matter the trading board or limit board is considerable, did not showthe asymmetric phenomenon.2、As to the delayed price discovery effect, research shows that price limits maydelay the equilibrium price discovery, both limit up or limit down, prices sustainedphenomenon are higher than the comparison group. therefore the establishment ofthe system will affect the entire market efficiency.3、As to the spillover effect of liquidity, the price limits system will restrict theliquidity of stock, both limit up or limit down will produce spillover effects for nearly a week on liquidity.At last，we give some suggestions through the conclusion of this paper，in orderto increase the efficiency of the market.