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Relative performance of trading halts and price limits: Evidence from the Spanish Stock Exchange

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  • Kim, Yong H.
  • Yagüe, José
  • Yang, J. Jimmy

Abstract

We study the relative performance of trading halts and price limits using data from the Spanish Stock Exchange where both mechanisms have coexisted. According to our evidence, trading activity increases after either mechanism is triggered. Volatility stays the same after trading halts but increases after price limit hits. Our evidence also shows that the bid-ask spread is narrower after trading halts but wider after price limit hits. Information is efficiently reflected in stock prices once trading resumes after trading halts, but there is evidence of market overreaction for upper price limits. Our overall result may have important policy implications for financial markets in the world.

Suggested Citation

  • Kim, Yong H. & Yagüe, José & Yang, J. Jimmy, 2008. "Relative performance of trading halts and price limits: Evidence from the Spanish Stock Exchange," International Review of Economics & Finance, Elsevier, vol. 17(2), pages 197-215.
  • Handle: RePEc:eee:reveco:v:17:y:2008:i:2:p:197-215
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Yong H. Kim & J. Jimmy Yang, 2009. "Effect of Price Limits: Initial Public Offerings versus Seasoned Equities-super-," International Review of Finance, International Review of Finance Ltd., vol. 9(3), pages 295-318.
    2. Mei-Hua Liao & Chien-Chih Lin & Yinrou Wang, 2011. "The Effects of Removing Price Limits: Evidence from Taiwan IPO Stocks," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 47(0), pages 40-52, November.
    3. 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.
    4. Mei-Hua Liao & Chien-Chih Lin & Yinrou Wang, 2011. "The Effects of Removing Price Limits: Evidence from Taiwan IPO Stocks," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 47(0), pages 40-52, November.
    5. Carlos Castro & Diego Agudelo & Sergio Preciado, 2017. "Measuring the effectiveness of volatility call auctions," DOCUMENTOS DE TRABAJO 015498, UNIVERSIDAD DEL ROSARIO.
    6. repec:bla:irvfin:v:16:y:2016:i:4:p:565-593 is not listed on IDEAS
    7. 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.
    8. James Brugler & Oliver Linton, 2014. "Circuit Breakers on the London Stock Exchange: Do they improve subsequent market quality?," Cambridge Working Papers in Economics 1453, Faculty of Economics, University of Cambridge.
    9. James Brugler & Oliver Linton, 2014. "Single stock circuit breakers on the London Stock Exchange: do they improve subsequent market quality?," CeMMAP working papers CWP07/14, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
    10. Levy, Tamir & Qadan, Mahmod & Yagil, Joseph, 2013. "Predicting the limit-hit frequency in futures contracts," International Review of Financial Analysis, Elsevier, vol. 30(C), pages 141-148.
    11. repec:eee:pacfin:v:45:y:2017:i:c:p:34-51 is not listed on IDEAS
    12. Kao, Erin H., 2011. "Momentum and reversals in Taiwan index futures returns during periods of extreme trading imbalance," International Review of Economics & Finance, Elsevier, vol. 20(3), pages 459-467, June.
    13. Hsieh, Ping-Hung & Kim, Yong H. & Yang, J. Jimmy, 2009. "The magnet effect of price limits: A logit approach," Journal of Empirical Finance, Elsevier, vol. 16(5), pages 830-837, December.
    14. Frino, Alex & Lecce, Steven & Segara, Reuben, 2011. "The impact of trading halts on liquidity and price volatility: Evidence from the Australian Stock Exchange," Pacific-Basin Finance Journal, Elsevier, vol. 19(3), pages 298-307, June.

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