Are price limits really bad for equity markets?
AbstractDespite widely documented criticisms, price-limit rules are present in many equity markets around the world. Using a game-theoretic model, we argue that, if the cost of monitoring a market is high, price-limit rules are beneficial. Empirical tests based on a cross section of 43 equity markets across five continents support our theoretical prediction. We find that the probability of the existence of price-limit rules is greater in markets that incur higher monitoring costs due to poorer business disclosure, more corruption and less efficiency in legal, regulatory and technological environments.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Banking & Finance.
Volume (Year): 34 (2010)
Issue (Month): 10 (October)
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Web page: http://www.elsevier.com/locate/jbf
Price limit Market manipulation Market monitoring costs;
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