The Impact Of The Price Limit Rules On Stock Price Volatility

China’s A-share market experienced rounds of skyrocketing and plunging from 2015 to 2018,and the price limit rules was once again questioned on its effectiveness.Although there are much research on whether the price limit rules can suppress excessive the stock price volatility,how to test the “treatment effect” of the price limit rules has always been a difficult point.For the first time,this study uses the propensity score matching method(PSM)to study the effectiveness of the price limit rules in the A-share market,and achieves the goal of random grouping by controlling the company’s fundamental characteristics and other information to reduce the sample selection bias.This study selects the transaction data of Shanghai and Shenzhen A shares from November 20,2017 to November 16,2018.The event research method is used to divide the stock into treatment group which hit the limit and control group which almost hit the limit.PSM method select the appropriate stocks from the control group to match the treatment group.Thus,this study could reduce the sample selection bias.This study empirically finds that the price limit rules couldn’t restrain excessive stock price volatility.It causes the price delay discovery effect and increases the liquidity on the post limit hit days,this paper obtains the result that increased liquidity will lead to increased stock price volatility based on the two-way fixed effect model.This study also finds the asymmetry of the effect of the price limit rules: the spillover effect and the price delay discovery effect of the down limit are stronger than that of the up limit,but the impact on liquidity is weaker than that of the up limit.Finally,based on the research conclusions,this study proposes to set flexible and asymmetry limits ranges.