Price Limits and Stock Market Volatility in the Athens Stock Exchange

Posted: 25 Oct 1998

See all articles by Gikas Manalis

Gikas Manalis

Hellenic Exchanges Holdings SA

Kate Phylaktis

City University London - Sir John Cass Business School

Manolis G. Kavussanos

Athens University of Economics and Business - Department of Accounting and Finance

Abstract

In this paper, we have examined the effects of price limits on the stock volatility in ASE. We put forward two hypotheses, the information hypothesis, which implies that price limits only slow down the process of adjustment and have no effect on stock volatility; and the overreaction hypothesis, which assumes that investors tend to overreact to new information, so that price limits give them time to reassess the information and reduce stock volatility. Our results show strong support for the information hypothesis. This evidence is obtained by performing the tests on ten stocks, which include heavily traded stocks as well as less active stocks, and covering a variety of industries, and on a market wide price index. The results are also robust to the frequency of the measurement of the returns, and to the tightness of the limits.

JEL Classification: G14

Suggested Citation

Manalis, Gikas and Phylaktis, Kate and Kavussanos, Manolis G., Price Limits and Stock Market Volatility in the Athens Stock Exchange. European Financial Management, Vol. 5, No. 1, March 1999; Cass Business School Research Paper. Available at SSRN: https://ssrn.com/abstract=137353

Gikas Manalis

Hellenic Exchanges Holdings SA

Athens
Greece

Kate Phylaktis (Contact Author)

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom
+44 20 70408735 (Phone)
+44 20 70408881 (Fax)

HOME PAGE: http://www.cass.city.ac.uk/faculty/k.phylaktis/

Manolis G. Kavussanos

Athens University of Economics and Business - Department of Accounting and Finance ( email )

76 Patission St
TK 104 34 Athens
Greece
0030 210 8203167 (Phone)
0030 210 8228816 (Fax)

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