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A Theoretical Study of Market Performance under Price Limits and Circuit Breakers in Chinese Stock Market
School of Economics and Management, Tsinghua University, Beijing, China
- 1 School of Economics and Management, Tsinghua University, Beijing, China
Theoretical Economics Letters·Volume 10 (2020)·Pages 218–231·Published 16 January 2020·DOI10.4236/tel.2020.101014
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Abstract
The effectiveness of circuit breakers is widely discussed in previous studies, but few of them distinguish between price limits and market-wide circuit breakers. We develop a two-period Stackelberg game, testing the behavioral change of informed and uninformed investors under different circuit breakers. We find that informed investors become more conservative and trade in smaller sizes under circuit breakers, especially market-wide circuit breakers. But uninformed investors trade quite oppositely. This behavioral change make s stock price less informative, and dominated by investor sentiment. We also contribute the market crash in early January, 2016 to this behavioral change.
KeywordsCircuit BreakersPrice LimitsInformationInvestorsLiquidity
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