Economics, Econometrics and Finance
8 years ago

Price limits in stock markets cause volatility spillover and trading interference.

PLoS ONE
Are Price Limits Effective? An Examination of an Artificial Stock Market
Xiaotao Zhang, Jing Ping, Tao Zhu, Yuelei Li, Xiong Xiong

Paper Summary

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Price limits in stock markets can impact volatility and trading. A study created a simulated stock market to test the effects of price limits. Results show that both upper and lower limits can lead to increased volatility and trading disruptions. When upper limits are in place, the process of determining stock prices can be delayed. However, this delay does not occur with lower price limits.