Economics at your fingertips  

Do regulations work? A comprehensive analysis of price limits and trading restrictions in experimental asset markets with deterministic and stochastic fundamental values

Zhengyang Bao, Kenan Kalayci (), Andreas Leibbrandt () and Carlos Oyarzun

Journal of Economic Behavior & Organization, 2020, vol. 178, issue C, 59-84

Abstract: We examine how traders react to two prominent stock market regulations. Under a constant fundamental value (FV) process, price limits and trading restrictions significantly reduce the price level and mispricing size when traders are inexperienced. Under a Markov-process FV, there is no evidence for these regulations to reduce mispricing. The novel Markov process also serves as a testbed for several financial hypotheses related to the regulations. We find that price limits do not improve reactions to market news and the binding of price limits magnifies the momentum in the price movements. These findings suggest that the scope of these regulations is limited and that they can backfire in some market environments.

Keywords: Asset market experiment; Price limits; The t + 1 rule (search for similar items in EconPapers)
JEL-codes: C92 D14 D81 D84 G01 G11 J16 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3) Track citations by RSS feed

Downloads: (external link)
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

DOI: 10.1016/j.jebo.2020.07.012

Access Statistics for this article

Journal of Economic Behavior & Organization is currently edited by Houser, D. and Puzzello, D.

More articles in Journal of Economic Behavior & Organization from Elsevier
Bibliographic data for series maintained by Catherine Liu ().

Page updated 2022-05-25
Handle: RePEc:eee:jeborg:v:178:y:2020:i:c:p:59-84