Market Effects of Price Limits in the Chinese Stock Market: Evidence from the Shanghai, Shenzhen, and Beijing Stock Exchanges

Abstract

Price limits represent an important trading mechanism in China’s capital market and have undergone continuous adjustments while playing a crucial role in market operations. However, the effectiveness of the price limit system has long been subject to theoretical debate and empirical controversy in the literature.Using A-share main-board stocks listed on the Shanghai,Shenzhen, and Beijing Stock Exchanges from October 2020 to May 2025 as the research sample,this paper systematically examines three major hypotheses associated with price limit regulations:the volatility spillover effect,the trading interference effect, and the delayed price discovery effect. The empirical results show that when stocks hit the lower price limit,significant volatility spillover effects are observed in both the Shanghai and Shenzhen Stock Exchanges,whereas this effect is not statistically significant when stocks reach the upper price limit, indicating a clear asymmetry in volatility spillovers.The trading interference effect is strongly supported across all three exchanges. In addition, the delayed price discovery effect is significantly present in the Shanghai and Shenzhen markets but cannot be verified in the Beijing Stock Exchange.These findings contribute to a deeper understanding of the functioning of price limit mechanisms in different market environments and provide empirical evidence and theoretical insights for policy evaluation and potential institutional reforms of the price limit system.