A Theoretical Study of Market Performance under Price Limits and Circuit Breakers in Chinese Stock Market

摘要

The effectiveness of circuit breakers is widelydiscussed in previous studies, but few of them distinguish between price limitsand market-wide circuit breakers. We develop a two-period Stackelberg game,testing the behavioral change of informed and uninformed investors underdifferent circuit breakers. We find that informed investors become moreconservative and trade in smaller sizesunder circuit breakers, especially market-wide circuit breakers. But uninformedinvestors trade quite oppositely. This behavioral change makes stock price less informative, and dominated by investor sentiment. Wealso contribute the market crash in early January, 2016 to this behavioralchange.