Price Limits and the Stock Market Volatility in the Athens Stock Exchange

European Financial Management, Vol. 5, No. 1,1999, 69-84

Posted: 7 Feb 2014

See all articles by Manolis G. Kavussanos

Manolis G. Kavussanos

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

Kate Phylaktis

City University London - Sir John Cass Business School

Gikas Manalis

Hellenic Exchanges Holdings SA

Date Written: 1999

Abstract

In this paper, we examine 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 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.

Keywords: price limits and volatility, emerging capital markets, ARCH/GARCH modelling, Athens Stock Exchange

JEL Classification: G14

Suggested Citation

Kavussanos, Manolis G. and Phylaktis, Kate and Manalis, Gikas, Price Limits and the Stock Market Volatility in the Athens Stock Exchange (1999). European Financial Management, Vol. 5, No. 1,1999, 69-84 . Available at SSRN: https://ssrn.com/abstract=2385867

Manolis G. Kavussanos (Contact Author)

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)

Kate Phylaktis

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/

Gikas Manalis

Hellenic Exchanges Holdings SA

Athens
Greece

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