Let's Experiment with Lifting Trading Limits on China's Bourses

Setting a daily limit on share price changes in either direction was meant to prevent sharp market swings. The idea is that it will give investors more time to digest information before deciding whether or not to buy or sell a stock.

The reality of China's stock market, however, is the market seems to have fluctuated even more widely than bourses without the trading limit. For the cap to have the desired effect, investors must be willing to look for what made the price of a stock change, reasons that are related to the firm's condition and performance. This happens only in a market dominated by institutional investors who base their decisions largely on fundamentals.