Price bands and their effects on equity markets: Evidence from a natural experiment

Vladimir A. Gatchev, Rama Seth, Ajai Singh and S.R. Vishwanatha

Journal of Financial Markets, 2023, vol. 66, issue C

Abstract: We exploit a unique experiment, where the intraday price moves of Indian IPO listings are restricted within a narrow band, to examine the consequences of price bands for stock prices, investor trading behavior, and stock market liquidity. Based on difference-in-differences estimations, we find that price bands lead to a significant reduction in the price variability of IPO stocks. The decrease in variability is accompanied by increases in post-IPO selling by individual investors, the price impact of trades, and IPO expected returns. Bid-ask spreads remain similar. The findings provide new evidence on the effects of intraday price bands on equity markets.

Keywords: Price limits; Stock market liquidity; Investor trading behavior; Asset prices; IPOs (search for similar items in EconPapers)
JEL-codes: G11 G12 G15 G18 G40 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:66:y:2023:i:c:s1386418123000381

DOI: 10.1016/j.finmar.2023.100840

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