The Empirical Research On The Relationship Between The Price Limit And Stock Price Synchronicity

As one of the price stabilizers,price limit is widely used around the world.Since the implement of price limit in China market,there have been broad discussions about the effects of price limit on market efficiency.Price informativeness and price synchronicity have drawn wide attention.Many scholars research price synchronicity based on China market,from the perspectives of financial system construction,information transparency,and information disclosure.However,there are few papers studying the relationship between price limit and price synchronicity.The effects of price limit on price synchronicity still need in-depth study.Because of the special treatment,there are two kinds of price limits in China market,which facilitates studying the effects of price limit on synchronicity.For ST stocks,the price limit is 5%.For non-ST stocks,the price limit is 10%.This paper research the effect of price limit on China stock market from the perspective of price synchronicity.We test the difference of synchronicity before and after Stock Exchanges carried out the price limit mechanism in December 1996,using A-shares through 1996 to 1997.We test the difference of synchronicity between ST stocks with 5%price limit and non-ST firms with 10%price limit,using A-shares through 2000 to 2015.Moreover,we do robustness checks,using propensity score matching method to find comparable samples.The study finds synchronicity increased significantly after Stock Exchanges carried out price limit in December 1996.The synchronicity of stocks with 5%is significantly higher than stocks with 10%price limit.Even after controlling for other factors,we still found that the difference in price limit has significant influence on price synchronicity.At the end of this thesis,based on the analysis of the empirical results,this thesis puts forward some policy suggestions for further improving market efficiency and developing stock market.