Impact of Price Limit on Stock Performance

Authors

  • Latha Chari
  • Mohd Merajuddin Inamdar

DOI:

https://doi.org/10.33516/rb.v43i1.114-122p

Keywords:

India, Stock Market, Price Limit, Stock Price Manipulation.

Abstract

Stock based price limits is a structural mechanism aimed at preventing excessive volatility in stock prices, preserving liquidity and preventing panic buying or selling. In the recent times, stock exchanges in addition to imposing additional margins are using price limits as a structural tool to dis-incentivize price manipulation in stocks. Past empirical studies conducted using data of global stock exchanges, reported that price limits delay price discovery, and as a consequence take away the liquidity in the stock. This study aims at assessing the impact of stock based price limits on price discovery and trading activity using data from National Stock Exchange. The results indicate that price limits delay price discovery. Volumes of shares traded remain at much higher level for 5 days after the event day. The Cumulative Average Abnormal Returns on the stocks hitting upper price band continue to increase after the event day. Hence, it is felt that price limits may have limited impact on trading volumes and stock returns.

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Published

2017-04-01

How to Cite

Chari, L., & Inamdar, M. M. (2017). Impact of Price Limit on Stock Performance. Research Bulletin, 43(1), 114–122. https://doi.org/10.33516/rb.v43i1.114-122p

Issue

Volume 43, Issue 1, April 2017

Section

Articles
Crossref
Scopus
Google Scholar
Europe PMC

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