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The effectiveness of competing regulatory regimes and the switching effects: Evidence from an emerging market

Listed author(s):
  • Farag, Hisham
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    I investigate the effectiveness of two competing regulatory regimes and the effect of switching from strict price limits to circuit breakers on volatility spillover, and also on trading interference hypotheses. I find that switching to the circuit breakers' regime increases volatility and disrupts the price discovery mechanism. Stock prices are prevented from reaching their equilibrium levels and traders are unable to obtain their desired positions on limits hit day. Moreover, I find that volatility is spread out over the following 2days post-limit hits within the strict price limits regime. Finally, the results show that price limits interfere with trading activity and affect investors' beliefs and liquidity positions.

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    File URL: http://www.sciencedirect.com/science/article/pii/S1044028314000209
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    Article provided by Elsevier in its journal Global Finance Journal.

    Volume (Year): 25 (2014)
    Issue (Month): 2 ()
    Pages: 136-147

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    Handle: RePEc:eee:glofin:v:25:y:2014:i:2:p:136-147
    DOI: 10.1016/j.gfj.2014.06.005
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/620162

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