Does Price Limit Reduce The Stock Price Volatility On The Limit Up And Down Day?

As a price stabilization mechanism to prevent the sharp shock of the stock market,price limit has been accompanied by the development of the stock market from the date of the birth of the stock market in China.In December 1996,China's stock market officially established a 10% price limit range,which has continued to this day.During this period,price limit has led to the extreme phenomenon that only 3.2 per cent of Chinese stocks can be traded normally.It is an important question that needs to be revealed urgently that whether the price limit will stabilize the market as expected by the top-level design and curb the volatility of the stock price on the day of the rise and fall.the impact of price limit on the stock market in China has caused the attention of the academic circle.The scholars have studied the effect of price limit by using a variety of methods,and got two conclusions.One thinks that price limit is a good inhibition of the excessive volatility of the market,which is beneficial to the market stability,while the other holds that price limit does not restrain the excessive volatility of the market,but increases the volatility.It is difficult for the current researches to effectively describe the true influence of price limit on stock price on the limit up and down day.This study embeds the working principle of band-pass filter in the relationship between price limit and stock price volatility,and constructs GARCH(1,1)model by using the high-frequency transaction data in Chinese stock market to re-examine the influence of price limit on stock price volatility on the limit up and down day.The results show that:(1)the working principle of band-pass filter fits well the influence mechanism of price limit on stock price volatility;(2)price limit doesn't play a role in reducing the stock price volatility but contributes to the volatility;(3)The operation of stock market is a complex systematic project,and the price limit has its own objective regularity and scientific nature.Therefore,this paper suggests to follow the randomness and regularity of the stock movement in the period of fluctuation and decline,and combine the international stock price experience to introduce the policy of differential fluctuation restriction in the initial stage.In addition,priority will be given to relaxing the limit on the rise and fall of blue-chip stocks and stocks with lower prices by 15% or 20%.With the maturing of our stock market investment concepts and the improvement of the investment environment,we will gradually and comprehensively liberalize all the price and decline limits to 30%.After the market has matured and perfected,the limit of the increase and fall will be completely abolished,so that the market mechanism determines the rise and fall of stock prices.