Toward a Flexible Price Limit System

54 Pages Posted: 24 Aug 2009 Last revised: 26 Aug 2009

See all articles by Saikat S. Deb

Saikat S. Deb

Deakin University - School of Accounting, Economics and Finance

Petko S. Kalev

La Trobe Business School

Vijaya B. Marisetty

RMIT University; Financial Research Network (FIRN)

Multiple version iconThere are 2 versions of this paper

Date Written: August 23, 2009

Abstract

We argue that majority of the price limits imposed by stock exchanges are improper due to their rigid and objective criteria. We propose a flexible price limit system based on the predicted likelihood of improper price limit imposition. We suggest that if exchange-officials decide on relaxing or continue imposing price limits for a trading day, based on predicted probability of volatility spillover and consecutive hit, then price limit rules could become more effective. We support our hypothesis using intraday data of Tokyo Stock Exchange listed stocks for a period of 5years between 2001 to 2005.

Keywords: Price Limits, Volatility Spill Over, Market Microstraucture

JEL Classification: G10, G18

Suggested Citation

Deb, Saikat Sovan and Kalev, Petko S. and Marisetty, Vijaya B., Toward a Flexible Price Limit System (August 23, 2009). Available at SSRN: https://ssrn.com/abstract=1460065 or http://dx.doi.org/10.2139/ssrn.1460065

Saikat Sovan Deb (Contact Author)

Deakin University - School of Accounting, Economics and Finance ( email )

Building lb Room 5.305
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Burwood, Victoria 3125
Australia
0061 3 92517745 (Phone)
+61 3 9244 6283 (Fax)

HOME PAGE: http://www.deakin.edu.au/buslaw/aef/

Petko S. Kalev

La Trobe Business School ( email )

Department of Economics and Finance
Donald Whitehead Building: Level 3, DWB313
Bundoora, Victoria 3086
Australia
+613 9479 6285 (Phone)
+613 9479 1654 (Fax)

HOME PAGE: http://www.latrobe.edu.au/business/about/staff/profile?uname=PKalev

Vijaya B. Marisetty

RMIT University ( email )

Business
Level 12, 239 Bourke Street
Melbourne, Victoria 3000
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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