Do Price Limits Behave Like Magnets?

Using high frequency trade data, this paper tests, for the first time, the hypothesis that price limits behave like "magnets", and so, are self-fulfilling. It finds that price limits do not behave like "black holes" sucking in all stock prices. Also, there is an acceleration of trading activity as stocks approach the neighbourhood of their lower, but not their upper, price limit. Examining the extent of trading at the limit price appears to reveal more rational behaviour at the upper limit than at the lower limit.