  In this paper, we investigate the cooling-off effect (opposite to the magnet
effect) from two aspects. Firstly, from the viewpoint of dynamics, we study the
existence of the cooling-off effect by following the dynamical evolution of
some financial variables over a period of time before the stock price hits its
limit. Secondly, from the probability perspective, we investigate, with the
logit model, the existence of the cooling-off effect through analyzing the
high-frequency data of all A-share common stocks traded on the Shanghai Stock
Exchange and the Shenzhen Stock Exchange from 2000 to 2011 and inspecting the
trading period from the opening phase prior to the moment that the stock price
hits its limits. A comparison is made of the properties between up-limit hits
and down-limit hits, and the possible difference will also be compared between
bullish and bearish market state by dividing the whole period into three
alternating bullish periods and three bearish periods. We find that the
cooling-off effect emerges for both up-limit hits and down-limit hits, and the
cooling-off effect of the down-limit hits is stronger than that of the up-limit
hits. The difference of the cooling-off effect between bullish period and
bearish period is quite modest. Moreover, we examine the sub-optimal orders
effect, and infer that the professional individual investors and institutional
investors play a positive role in the cooling-off effects. All these findings
indicate that the price limit trading rule exerts a positive effect on
maintaining the stability of the Chinese stock markets.
