Modeling Daily Stock Returns under Price Limits: An Empirical Analysis of China Stock Market

By introducing the concept of relative equilibrium return, this dissertation proposes a pseudo AR-Tobit model for daily return process of an asset under price limits. In application to Chinese stock market, the pseudo AR-Tobit model, on the one hand, produces much better point forecasting performance than AR model; on the other hand, it provides a strong evidence of the price limit effect on the process of an asset's return, that is the price limits which make the observed daily return of a stock more auto correlated with its lags.