s.m shariat panahi; A abjadpour
Volume 9, Issue 36 , January 2012, , Pages 93-121
Abstract
Price limit is a kind of circuit breaker which is used in developing stock exchanges and futures markets to prevent extreme price volatility, price manipulation, and financial crashes. Generally speaking, researchers and market participant usually disagree with price limit application, its efficiency, ...
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Price limit is a kind of circuit breaker which is used in developing stock exchanges and futures markets to prevent extreme price volatility, price manipulation, and financial crashes. Generally speaking, researchers and market participant usually disagree with price limit application, its efficiency, and its optimum range. Advocates believe that although price limit may delay price discovery, it prevents extreme price volatility and overreaction. On the other hand, critics assert that price limit causes price volatility spillover and intensify investor’s overreaction. Since there is no consensus over the price limit application and efficiency in the researches, it is recommended to study this issue using different methods. Therefore, we are trying to study price limit effects in Tehran Stock Exchange using Contrarian Investment Strategy. Our results show that price limit application in Tehran Stock Exchange delays price discovery but has nothing to do with investor’s overreaction. Consequently, it seems that regulators have prevented extreme volatility, although this constraint delays price discovery and reduces market efficiency.
