The Effectiveness of Asymmetric Price Limit Policy : Evidence from Heterogeneous Agent-Based Model

Price limit is a prevalent policy that intends to control significant volatility in financial markets. In the financial markets with price limit, the trades will be prevented from occurring outside the specified price bands. This paper analyses and compares the effectiveness of three price limit policies on stabilizing the market and improving market quality. The experimental results verify the hypothesis that the asymmetric limit policy — only with lower price limit (without upper price limit) —can promote market quality significantly by achieving smaller spread, higher trade volume, better price effectiveness and lower volatility. This finding suggests that asymmetric price limit might be a feasible policy for stock markets to promote market quality