ARE PRICE LIMITS EFFECTIVE? EVIDENCE FROM THE ISTANBUL STOCK EXCHANGE

Recep Bildik · Güzhan Gülay

57 citations0/0 files storedThe Journal of Financial Research

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Financial Markets and Investment Strategies Financial Risk and Volatility Modeling Market Dynamics and Volatility

Abstract

Abstract There is considerable discussion about controlling volatility by imposing price limits on asset prices. We examine the effects of price limits on a stock market by testing the volatility spillover, delayed price discovery, and trading interference hypotheses in a leading emerging market, the Istanbul Stock Exchange, which has a unique market microstructure as related to price limits. Our results support the volatility spillover, delayed price discovery, and trading interference hypotheses. We also show price locks at limits provide significantly stronger evidence regarding the effects of price limits than limit moves only. Finally, price limits have a significant effect on the stock market, casting doubt on their effectiveness.

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References

1986Stock return variances 1997Intraday periodicity and volatility persistence in financial markets 1986A transaction data study of weekly and intradaily patterns in stock returns 1997Price Limit Performance: Evidence from the Tokyo Stock Exchange 1989Price Volatility, International Market Links, and Their Implications for Regulatory Policies 1986A theory of price limits in futures markets 1994Volume, Volatility, and New York Stock Exchange Trading Halts 1992Trading Halts and Market Activity: An Analysis of Volume at the Open and the Close

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