Economics at your fingertips  

Effects of Price Limits on Volatility: Evidence from the Istanbul Stock Exchange

Recep Bildik and Selim Elekdag

Emerging Markets Finance and Trade, 2004, vol. 40, issue 1, 5-34

Abstract: In spite of the strong existence of price limits in financial markets, there is not much agreement and information on the effects of price limits on volatility and price discovery, which has important policy implications for the investors and regulators. This study examines the effects of price limits on stock return volatility by testing the overreaction and information hypotheses for the Istanbul Stock Exchange. We implement structural break tests as well as a comprehensive GARCH framework to estimate the impact of price limits on volatility, controlling for structural breaks, financial and economic crises, trading activity, and business cycle fluctuations. Our results do not support the information hypothesis. The fundamental conclusion of this paper is that the two-hour break between the two daily sessions reduces volatility by acting as a circuit breaker, which facilitates the dissemination of valuable information, thus preventing severe overreactions to news events, which are consistent with the overreaction hypothesis.

Keywords: ARCH-GARCH modeling; emerging markets; price limits; volatility (search for similar items in EconPapers)
Date: 2004
References: Add references at CitEc
Citations: View citations in EconPapers (7) Track citations by RSS feed

Downloads: (external link) (text/html)
Access to full text is restricted to subscribers.

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:

Ordering information: This journal article can be ordered from

Access Statistics for this article

More articles in Emerging Markets Finance and Trade from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().

Page updated 2023-01-17
Handle: RePEc:mes:emfitr:v:40:y:2004:i:1:p:5-34