Dynamic and Static Volatility Interruptions: Evidence from the Korean Stock Markets

Kyong Shik Eom, Kyung Yoon Kwon, Sung Chae La and Jong-Ho Park
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Kyong Shik Eom: CRMR, Department of Economics, University of California at Berkeley, Berkeley, CA 94720, USA
Kyung Yoon Kwon: Strathclyde Business School, University of Strathclyde, Glasgow G1 1XQ, UK
Sung Chae La: Korea Exchange, Busan 48400, Korea
Jong-Ho Park: Department of Business Administration, Sunchon National University, Sunchon 57922, Korea

JRFM, 2022, vol. 15, issue 3, 1-19

Abstract: We conducted a comprehensive analysis on the sequential introductions of dynamic and static volatility interruptions (VIs) in the Korean stock markets. The Korea Exchange introduced VIs to improve price formation, and to limit risk to investors from brief periods of abnormal volatility for individual stocks. We found that dynamic VI is effective in price stabilization and discovery, while the effect of static VI is limited. The static VI functions similarly to the pre-existing price-limit system; this accounts for its limited incremental benefit.

Keywords: volatility safeguards; volatility interruption; call auction; price stabilization; price discovery (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2022
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