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Price limit bands, asymmetric volatility and stock market anomalies: Evidence from emerging markets

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  • Farag, Hisham

Abstract

I investigate the effects of imposing different bands of price limits on stock returns and volatility in the Egyptian (EGX), Thai (SET) and Korean (KRX) stock exchanges. In addition, the paper examines whether the switch from narrow price limits (NPL) to wider price limits (WPL) structurally alters volatility and the day of the week anomaly. Using the extended EGARCH and PARCH asymmetric volatility models, I found that the switch from NPL to WPL structurally altered both asymmetric volatility and the day of the week anomaly in the EGX, SET and KRX. I argue that the price discovery mechanism is disrupted due to the switch as closing prices do not fully reflect all information arrived in the market when prices hit the limits and that is reflected on volatility and market efficiency.

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  • Farag, Hisham, 2013. "Price limit bands, asymmetric volatility and stock market anomalies: Evidence from emerging markets," Global Finance Journal, Elsevier, vol. 24(1), pages 85-97.
  • Handle: RePEc:eee:glofin:v:24:y:2013:i:1:p:85-97
    DOI: 10.1016/j.gfj.2013.03.002
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    1. repec:eee:pacfin:v:45:y:2017:i:c:p:142-156 is not listed on IDEAS
    2. repec:spr:annopr:v:260:y:2018:i:1:d:10.1007_s10479-016-2317-y is not listed on IDEAS

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    Keywords

    Volatility; Day of the week; Price limits;

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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