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The influence of price limits on overreaction in emerging markets: Evidence from the Egyptian stock market

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  • Farag, Hisham

Abstract

The main objective of this paper is to investigate the influence of price limits on the overreaction hypothesis in the Egyptian Stock Exchange (EGX) during the period 1999–2010. I find evidence of the overreaction anomaly in the EGX within different price limit regimes. Price reversal is observed two and three days post lower and upper limit hits respectively within the strict price limits regime. However, it occurs after one day only for both lower and upper limit hits within the circuit breakers regime. These results support the directional effect hypothesis as large stock price movements are followed by price reversals in the opposite direction. Moreover, the results support the magnitude effect hypothesis as the larger the initial price movements the greater the subsequent reversals.

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  • Farag, Hisham, 2015. "The influence of price limits on overreaction in emerging markets: Evidence from the Egyptian stock market," The Quarterly Review of Economics and Finance, Elsevier, vol. 58(C), pages 190-199.
    • Handle: RePEc:eee:quaeco:v:58:y:2015:i:c:p:190-199
    DOI: 10.1016/j.qref.2015.01.003
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    Cited by:

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    2. Zhou, Xinxing & Gao, Yan & Wang, Ping & Zhu, Bangzhu, 2022. "Examining the overconfidence and overreaction in China’s carbon markets," Economic Analysis and Policy, Elsevier, vol. 75(C), pages 472-489.
    3. 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.
    4. Ming-Chang Wang & Yu-Jia Ding & Pei-Han Hsin, 2018. "Order Aggressiveness and the Heating and Cooling-off Effects of Price Limits: Evidence from Taiwan Stock Exchange," Journal of Economics and Management, College of Business, Feng Chia University, Taiwan, vol. 14(2), pages 191-216, August.
    5. Diego A. Agudelo & Sergio Preciado & Carlos Castro, 2018. "Measuring the effectiveness of volatility auctions," Documentos de Trabajo CIEF 16943, Universidad EAFIT.
    6. Seza Danışoğlu & Z. Nuray Güner, 2018. "Do price limits help control stock price volatility?," Annals of Operations Research, Springer, vol. 260(1), pages 129-157, January.

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    More about this item

    Keywords

    Overreaction hypothesis; Price reversal; Emerging markets;
    All these keywords.

    JEL classification:

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

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