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Are Price Limits Always Bad?

Author

Listed:
  • Purnendu Nath

    (Purnendu Nath is at the Amplitude Capital LLP, 6–8 Tokenhouse Yard, London EC2R 7AS. E–mail: pnath.phd98@london.edu)

Abstract
This article re–examines the extent, if any, of the negative impacts of price limits. I provide fresh evidence supporting, only partially, the criticisms against the efficacy of such price limits. A negative impact of price limits when valid for one group of stocks or direction of price move, may not hold for another group of stocks or direction of price move. The article also presents a realistic estimate of the potential trading profits that may be made by using price limit hits as a trade signal.

Suggested Citation

  • Purnendu Nath, 2005. "Are Price Limits Always Bad?," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 4(3), pages 281-313, December.
    • Handle: RePEc:sae:emffin:v:4:y:2005:i:3:p:281-313
    DOI: 10.1177/097265270500400304
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    References listed on IDEAS

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    Cited by:

    1. Halim DABBOU & Ahmed SILEM, 2014. "Price Limit and Financial Contagion: Protection or Illusion? The Tunisian Stock Exchange Case," International Journal of Economics and Financial Issues, Econjournals, vol. 4(1), pages 54-70.
    2. Farag, Hisham, 2013. "Price limit bands, asymmetric volatility and stock market anomalies: Evidence from emerging markets," Global Finance Journal, Elsevier, vol. 24(1), pages 85-97.
    3. Halim Dabbou & Ahmed Silem, 2014. "Price limit and financial contagion: protection or illusion? The tunisian stock exchange case," Post-Print hal-00925424, HAL.
    4. Diego A. Agudelo & Sergio Preciado & Carlos Castro, 2018. "Measuring the effectiveness of volatility auctions," Documentos de Trabajo de Valor Público 16943, Universidad EAFIT.
    5. Carlos Castro & Diego A. Agudelo & Sergio Preciado, 2018. "Measuring the effectiveness of volatility auctions," Documentos de Trabajo de Valor Público 16988, Universidad EAFIT.
    6. Farag, Hisham, 2015. "The influence of price limits on overreaction in emerging markets: Evidence from the Egyptian stock market," The Quarterly Review of Economics and Finance, Elsevier, vol. 58(C), pages 190-199.

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