PRICE LIMIT EXPANSION AND STOCK PRICE DIVERGENCE IN GROWTH ENTERPRISE MARKET OF SHENZHEN STOCK EXCHANGE: ARE THERE ANY STYLIZED FACTS?

This study examines the impact of price limit expansion on stock price divergence and market efficiency in the Growth Enterprise Market (GEM) of the Shenzhen Stock Exchange (SZSE). Employing a combination of Propensity Score Matching-Difference-in-Differences (PSM-DID) and event study methodology, we exploit the August 24, 2020, reform that increased the daily price limit from [Formula: see text] to [Formula: see text]. Our results indicate that the price limit expansion significantly reduced stock price divergence, especially among larger firms, suggesting an improvement in market stability and price discovery. However, the reform coincided with increased information asymmetry, possibly due to short-term speculative activity and intensified informed trading. Event study results reveal an initial surge and subsequent decline in cumulative abnormal returns, reflecting investor sentiment fluctuations around the reform. These findings contribute to the literature by offering new stylized facts about price limit reforms in emerging markets and highlighting the complex interplay between regulatory change, investor behavior and market structure.