Price Limit Performance: evidence from transactions data and the limit order book

In recent years, organized stock exchanges with daily price limits adopted wider limits as narrower limits were criticized for jeopardizing market efficiency. This study examines the impact of a wide price limit on price discovery processes, using data from the Kuala Lumpur Stock Exchange. Specifica...

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Main Authors: CHAN, Soon Huat, Kim, Kenneth A., Rhee, S. Ghon
Format: text
Language:English
Published: Institutional Knowledge at Singapore Management University 2005
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Online Access:https://ink.library.smu.edu.sg/lkcsb_research/2971
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Institution: Singapore Management University
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spelling sg-smu-ink.lkcsb_research-39702010-11-24T06:18:04Z Price Limit Performance: evidence from transactions data and the limit order book CHAN, Soon Huat Kim, Kenneth A. Rhee, S. Ghon In recent years, organized stock exchanges with daily price limits adopted wider limits as narrower limits were criticized for jeopardizing market efficiency. This study examines the impact of a wide price limit on price discovery processes, using data from the Kuala Lumpur Stock Exchange. Specifically, examined is the impact of daily price limits on (i) information asymmetry; (ii) arrival rates of informed traders; and (iii) order imbalance. Using both trade-to-trade transaction data and the limit order book, we compile evidence that price limits do not improve information asymmetry, delays the arrival of informed traders, and exacerbates order imbalance. These results suggest that price limits on individual securities do not improve price discovery processes but impose serious costs even when the limit band is as wide as 30%. 2005-01-01T08:00:00Z text https://ink.library.smu.edu.sg/lkcsb_research/2971 info:doi/10.1016/j.jempfin.2004.01.001 Research Collection Lee Kong Chian School Of Business eng Institutional Knowledge at Singapore Management University Price limit Information asymmetry Informed traders Order imbalance Kuala Lumpur Stock Exchange Finance and Financial Management Portfolio and Security Analysis
institution Singapore Management University
building SMU Libraries
continent Asia
country Singapore
Singapore
content_provider SMU Libraries
collection InK@SMU
language English
topic Price limit
Information asymmetry
Informed traders
Order imbalance
Kuala Lumpur Stock Exchange
Finance and Financial Management
Portfolio and Security Analysis
spellingShingle Price limit
Information asymmetry
Informed traders
Order imbalance
Kuala Lumpur Stock Exchange
Finance and Financial Management
Portfolio and Security Analysis
CHAN, Soon Huat
Kim, Kenneth A.
Rhee, S. Ghon
Price Limit Performance: evidence from transactions data and the limit order book
description In recent years, organized stock exchanges with daily price limits adopted wider limits as narrower limits were criticized for jeopardizing market efficiency. This study examines the impact of a wide price limit on price discovery processes, using data from the Kuala Lumpur Stock Exchange. Specifically, examined is the impact of daily price limits on (i) information asymmetry; (ii) arrival rates of informed traders; and (iii) order imbalance. Using both trade-to-trade transaction data and the limit order book, we compile evidence that price limits do not improve information asymmetry, delays the arrival of informed traders, and exacerbates order imbalance. These results suggest that price limits on individual securities do not improve price discovery processes but impose serious costs even when the limit band is as wide as 30%.
format text
author CHAN, Soon Huat
Kim, Kenneth A.
Rhee, S. Ghon
author_facet CHAN, Soon Huat
Kim, Kenneth A.
Rhee, S. Ghon
author_sort CHAN, Soon Huat
title Price Limit Performance: evidence from transactions data and the limit order book
title_short Price Limit Performance: evidence from transactions data and the limit order book
title_full Price Limit Performance: evidence from transactions data and the limit order book
title_fullStr Price Limit Performance: evidence from transactions data and the limit order book
title_full_unstemmed Price Limit Performance: evidence from transactions data and the limit order book
title_sort price limit performance: evidence from transactions data and the limit order book
publisher Institutional Knowledge at Singapore Management University
publishDate 2005
url https://ink.library.smu.edu.sg/lkcsb_research/2971
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