Spillover effects of price limits on China stock market—Based on spatial Durbin model with time-varying weight matrices

ZHOU Yinggang, TANG Chengwei, XU Xingbai

Systems Engineering - Theory & Practice ›› 2025, Vol. 45 ›› Issue (2) : 463-480.

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中国科学院数学与系统科学研究院期刊网
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Systems Engineering - Theory & Practice ›› 2025, Vol. 45 ›› Issue (2) : 463-480. DOI: 10.12011/SETP2024-0766

Spillover effects of price limits on China stock market—Based on spatial Durbin model with time-varying weight matrices

  • ZHOU Yinggang1,2, TANG Chengwei3, XU Xingbai1,2,3
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Abstract

Based on the daily stock data of China's A-share main board market from 2012 to 2020, this paper establishes an unbalanced panel spatial Durbin model (SDM) with time-varying spatial weight matrices to study the spillover effect of price limit hits. The empirical results suggest that the upper price limit hit (lower price limit hit) can predict the future return of the connected stocks negatively (positively), indicating a significant negative spillover effect (positive spillover effect). This study further finds that under the influence of the price limit hits, there may be a substitution effect of liquidity between connected stocks. The upper price limit hit of a stock can increase its own capital inflow, while the capital outflow of other related stocks may increase. The situation of the lower price limit hit is the opposite. In addition, due to speculative traders, the higher the limit of arbitrage of a stock is, the stronger the spillover effect caused by its price limit hit will be. Finally, the price limits have a significant volatility spillover effect on other stocks in the short-term future.

Key words

upper price limits / lower price limits / spillover effect / spatial Durbin model

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ZHOU Yinggang , TANG Chengwei , XU Xingbai. Spillover effects of price limits on China stock market—Based on spatial Durbin model with time-varying weight matrices. Systems Engineering - Theory & Practice, 2025, 45(2): 463-480 https://doi.org/10.12011/SETP2024-0766

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Funding

National Natural Science Foundation of China (71988101, 72073110, 72333001);Major Program of National Social Science Foundation of China (19ZDA060)
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