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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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 |
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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 |
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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%. |
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text |
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CHAN, Soon Huat Kim, Kenneth A. Rhee, S. Ghon |
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CHAN, Soon Huat Kim, Kenneth A. Rhee, S. Ghon |
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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 |
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Price Limit Performance: evidence from transactions data and the limit order book |
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price limit performance: evidence from transactions data and the limit order book |
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Institutional Knowledge at Singapore Management University |
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2005 |
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https://ink.library.smu.edu.sg/lkcsb_research/2971 |
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