Abstract: The paper analyzes the stock price's change under the price limit mechanism. Con sidering the two period spillover effect and the total cost of investors under p rice limit， we study the impact o f price limit on stock market liquidity. The further simulation result shows tha t with the price limit mechanism，the price fluctuation will increase and result in investors' mental tolerance of return or loss reduction， and this will incr ease the market turnover and improve the market liquidity.