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Are price limits really bad for equity markets?

  • Deb, Saikat Sovan
  • Kalev, Petko S.
  • Marisetty, Vijaya B.
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    Despite 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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    File URL: http://www.sciencedirect.com/science/article/B6VCY-4YT6D4K-1/2/5a0b96989d1b84cf335519be8eb78215
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    Article provided by Elsevier in its journal Journal of Banking & Finance.

    Volume (Year): 34 (2010)
    Issue (Month): 10 (October)
    Pages: 2462-2471

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    Handle: RePEc:eee:jbfina:v:34:y:2010:i:10:p:2462-2471
    Contact details of provider: Web page: http://www.elsevier.com/locate/jbf

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