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Price Limit, Margin Trading and Stock Market Volatility——Evidence from A-Share Stock Market
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TitlePrice Limit, Margin Trading and Stock Market Volatility——Evidence from A-Share Stock Market  
AuthorWang Chaoyang and Wang Zhenxia  
OrganizationNational Academy of Economic Strategy, CASS; 
Key WordsPrice Limit; Margin Trading; Circuit Breaker; Volatility 
AbstractIn the last more than 20 years, price limit mechanism is known as an absolutely necessary regulation in Chinese stock market. This paper use E-GARCH model to compares the Chinese stock market volatility with other markets those without price limit. Our empirical evidence suggests price limit may cause higher volatility. Then, based on the difference in differences (DID) approach, we compare the volatility between A-share and H-share market, we find that there is no evidence shows price limit can moderate volatility in long term. Further, after introduce of margin trading mechanism, the price limit is more ineffective then before. Moreover, price limit is not compatible with circuit breaker mechanism. In the future, government should deepen reform the regulation of the financial sector, improve trading mechanism, crack down on illegal trade and build a fair, transparent and predictable stock market. 
Serial NumberWP1137 
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