Research On The Effect Of The Change Of The Price Limits System On The Stock Market Quality

As an important part of the securities market trading mechanism,the price limits system originated from the early foreign securities market.It is a trading system in the securities market to prevent the soaring of trading prices,suppress excessive speculation,and appropriately limit the price rise and fall of each security on the same day.In the initial stage of the establishment of China's stock market,the price limits system has changed several times.Until 1996,the Shanghai Stock Exchange and the Shenzhen Stock Exchange began to implement a 10% price limits system.However,the role of the price limits system has been a major controversy.Proponents of the system believe that price stability mechanisms can stabilize prices and prevent panic and overreaction.Institutional opponents believe that price stability mechanisms will bring volatility spillovers,delays in price discovery,liquidity disruptions and magnetic effects to the market.By studying the impact of changes in the price limits system on the quality of the stock market,including whether the change in the pre-up or post-change suspension system has played a role in reducing market volatility,whether it affects the efficiency of information transmission in the stock market and whether it has an impact on liquidity,and judging the reasonableness and irrationality of current system,so that the trading system can play a function of stabilizing market prices,increasing market efficiency,and optimizing investor behavior,which are conducive to the smooth and healthy development of the stock market.On the basis of previous work,this paper builds a test on the liquidity,volatility,and stock market efficiency of the Shanghai,Shenzhen,and two markets before and after the change in the price limits system by difference-in-differences simultaneous equations and uses the event study method to detect transaction interference effect,price discovery delay effect and volatility spillover test as a further examination to determine the effect of the change in the price limits system.The results show that,for the Shanghai stock market,the setting of the price limits system has reduced the liquidity,volatility and market efficiency of the Shanghai stock market.At the same time,it has caused the volatility spillover effect and the delay in the price discovery to a certain extent.In the case of Shenzhen stock market,the establishment of a price limits system has improved the liquidity and market efficiency of the Shenzhen stock market and reduced the volatility of the Shenzhen stock market.The results of the comprehensive two-market test show that compared to the absence of price limits,the liquidity and market efficiency of the general market improved significantly,and the volatility was significantly reduced.Therefore,it is recommended to establish a stock market quality supervision system,gradually improve the price limits system under mature conditions.Since the price limits system prohibits the process of price discovery and the investors' responses are asymmetric,regulators can gradually relax the price limits and take asymmetry price limits system.