@article{a788ccfe5f234a1b9688970eb6e12fa3,
title = "Daily price limits and destructive market behavior",
abstract = "We use account-level data from the Shenzhen Stock Exchange to show that daily price limits, a widely adopted market stabilization mechanism, may lead to unintended, destructive market behavior: large investors tend to buy on the day when a stock hits the 10% upper price limit and then sell on the next day; and their net buying on the limit-hitting day predicts stronger long-run price reversal. We also analyze a sample of special treatment (ST) stocks, which face tighter 5% daily price limits, and provide a causal validation from comparing market dynamics before and after they are assigned the ST status.",
keywords = "Financial regulation, Investor behavior, Price limit rule, Speculation",
author = "Ting Chen and Zhenyu Gao and Jibao He and Wenxi Jiang and Wei Xiong",
note = "Funding Information: We are grateful to seminar participants at the Chinese University of Hong Kong, Columbia University, the Shenzhen Stock Exchange, Tsinghua University, the University of Hong Kong, and the University of Maryland for helpful comments and suggestions. We especially thank Zhengjun Zhang and two anonymous referees for constructive comments. We acknowledge the financial support from the National Natural Science Foundation of China (Grant No. 71733004). Funding Information: We are grateful to seminar participants at the Chinese University of Hong Kong, Columbia University, the Shenzhen Stock Exchange, Tsinghua University, the University of Hong Kong, and the University of Maryland for helpful comments and suggestions. We especially thank Zhengjun Zhang and two anonymous referees for constructive comments. We acknowledge the financial support from the National Natural Science Foundation of China (Grant No. 71733004 ). Publisher Copyright: {\textcopyright} 2018 Elsevier B.V.",
year = "2019",
month = jan,
doi = "10.1016/j.jeconom.2018.09.014",
language = "English (US)",
volume = "208",
pages = "249--264",
journal = "Journal of Econometrics",
issn = "0304-4076",
publisher = "Elsevier BV",
number = "1",
}