Price Limit Performance: Evidence from the Tokyo Stock Exchange

Journal of Finance, June 1997

Posted: 18 Apr 1998

See all articles by Kenneth Kim

Kenneth Kim

Tongji University - School of Economics and Management; SUNY at Buffalo - School of Management

S. Ghon Rhee

University of Hawaii at Manoa - Shidler College of Business; University of Hawaii at Manoa - Department of Financial Economics and Institutions

Abstract

Price limit advocates claim that price limits decrease stock price volatility, counter overreaction, and do not interfere with trading activity. Conversely, price limit critics claim that price limits cause higher volatility levels on subsequent days (volatility spillover hypothesis), prevent prices from efficiently reaching their equilibrium level (delayed price discovery hypothesis), and interfere with trading due to limitations imposed by price limits (trading interference hypothesis). Empirical research does not provide conclusive support for either positions. We examine the Tokyo Stock Exchange price limit system to test these hypotheses. Our evidence supports all three hypotheses suggesting that price limits may be ineffective.

JEL Classification: G14, G15

Suggested Citation

Kim, Kenneth A. and Rhee, S. Ghon, Price Limit Performance: Evidence from the Tokyo Stock Exchange. Journal of Finance, June 1997, Available at SSRN: https://ssrn.com/abstract=55063

Kenneth A. Kim (Contact Author)

Tongji University - School of Economics and Management ( email )

Siping Road 1500
Shanghai, Shanghai 200092
China

SUNY at Buffalo - School of Management ( email )

Jacobs Management Center
Buffalo, NY 14222
United States

S. Ghon Rhee

University of Hawaii at Manoa - Shidler College of Business ( email )

2404 Maile Way
C-304, FEI/CBA
Honolulu, HI 96822
United States

University of Hawaii at Manoa - Department of Financial Economics and Institutions ( email )

United States

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