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Price limits and volatility

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  • Deb, Saikat Sovan
  • Kalev, Petko S
  • Marisetty, Vijaya B

Abstract

This study provides new evidence on efficacy of daily price limit rules. We propose use of propensity score matching techniques to reduce sample selection bias in widely used Kim and Rhee (1997). Using data from the Tokyo Stock Exchange over a period of 5years from January 2001 to December 2005, this study shows that price limit rules work quite efficiently for lower limit hits as there is no evidence of volatility spill-over. We also find that daily price limits have differential effects on permanent and transitory components of daily volatility. Our study reports evidence of spill-over of permanent volatility. However, we find price limit successfully curbs the transitory volatility on the post limit hit days.

Suggested Citation

  • Deb, Saikat Sovan & Kalev, Petko S & Marisetty, Vijaya B, 2017. "Price limits and volatility," Pacific-Basin Finance Journal, Elsevier, vol. 45(C), pages 142-156.
    • Handle: RePEc:eee:pacfin:v:45:y:2017:i:c:p:142-156
    DOI: 10.1016/j.pacfin.2016.12.002
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    References listed on IDEAS

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    Cited by:

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    2. Zhuwei Li & Xuejiao Lu & Yuan Fu, 2022. "Interaction influence of trading rules on the quality of stock markets: the price limit rule and day trading rule from the Shanghai and Shenzhen Stock exchanges," Applied Economics, Taylor & Francis Journals, vol. 54(56), pages 6467-6479, December.
    3. Bing, Tao & Cui, Yian & Min, Ying & Xiong, Xiong, 2022. "Price limit changes and market quality: Evidence from China," Finance Research Letters, Elsevier, vol. 48(C).

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