Open AccessAre Price Limits Effective? An Examination of an Artificial Stock Market
Author(s) -
Xiaotao Zhang,
Jing Ping,
Tao Zhu,
Yuelei Li,
Xiong Xiong
Publication year - 2016
Publication title -
plos one
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.99
H-Index - 332
ISSN - 1932-6203
DOI - 10.1371/journal.pone.0160406
Subject(s) - limit price , price discovery , economics , mid price , volume weighted average price , spillover effect , stock market , volatility (finance) , econometrics , price level , cost price , stock (firearms) , stock price , financial economics , monetary economics , microeconomics , series (stratigraphy) , biology , mechanical engineering , paleontology , horse , engineering , futures contract
We investigated the inter-day effects of price limits policies that are employed in agent-based simulations. To isolate the impact of price limits from the impact of other factors, we built an artificial stock market with higher frequency price limits hitting. The trading mechanisms in this market are the same as the trading mechanisms in China’s stock market. Then, we designed a series of simulations with and without price limits policy. The results of these simulations demonstrate that both upper and lower price limits can cause a volatility spillover effect and a trading interference effect. The process of price discovery will be delayed if upper price limits are imposed on a stock market; however, this phenomenon does not occur when lower price limits are imposed.