Price Limits: How Effective? Evidence from the Istanbul Stock Exchange

30 Pages Posted: 4 Oct 2004

See all articles by Recep Bildik

Recep Bildik

Borsa Istanbul (Istanbul Stock Exchange)

Guzhan Gulay

Istanbul Stock Exchange

Date Written: May 27, 2004

Abstract

There has been considerable discussion in policy circles about controlling volatility by imposing price limits on asset prices. This study examines the effects of price limits on a stock market by testing volatility spillover, delayed price discovery, and trading interference hypotheses in a leading emerging market, Istanbul Stock Exchange (ISE), which has a unique microstructure with related to price limits. Our results support volatility spillover, delayed price discovery, and trading interference hypotheses. We also show price locks at limits measured by Volume-Weighted Average Prices provide significantly stronger evidence regarding the effects of price limits than measurement of limit moves only. Finally, price limits have a significant impact on stock market, casting doubt on their effectiveness in financial markets.

Keywords: Price limits, volatility, microstructure, overreaction, price discovery

JEL Classification: G10, G14

Suggested Citation

Bildik, Recep and Gulay, Guzhan, Price Limits: How Effective? Evidence from the Istanbul Stock Exchange (May 27, 2004). Available at SSRN: https://ssrn.com/abstract=598922 or http://dx.doi.org/10.2139/ssrn.598922

Recep Bildik (Contact Author)

Borsa Istanbul (Istanbul Stock Exchange) ( email )

Borsa Istanbul
Resitpasa, Emirgan
Istanbul, 34467
Turkey
90-212-298 21 93 (Phone)
90-212-298 25 00 (Fax)

Guzhan Gulay

Istanbul Stock Exchange ( email )

Istanbul Menkul Kiymetler Borsasi
Istinye 80860 Stock Market Department
Istanbul
Turkey
90-212-298 22 16 (Phone)
90-212-298 25 00 (Fax)

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