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
Date Written: 1999
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: Suggested Citation