Price limits and volatility

Deb, S, Kalev, P and Marisetty, V 2017, 'Price limits and volatility', Pacific Basin Finance Journal, vol. 45, pp. 142-156.


Document type: Journal Article
Collection: Journal Articles

Title Price limits and volatility
Author(s) Deb, S
Kalev, P
Marisetty, V
Year 2017
Journal name Pacific Basin Finance Journal
Volume number 45
Start page 142
End page 156
Total pages 15
Publisher Elsevier
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 5 years 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.
Subject Accounting, Auditing and Accountability not elsewhere classified
Banking, Finance and Investment not elsewhere classified
Keyword(s) Permanent and transitory volatility
Post limit hit day
Price limit rules
Propensity score matching
Volatility spill over
DOI - identifier 10.1016/j.pacfin.2016.12.002
Copyright notice © 2016 Published by Elsevier B.V.
ISSN 0927-538X
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