Authors
Abstract
Abstract: Illogical limits of the stock prices have led to ambiguities in optimal resource allocations. Price limit prevents increase or decrease in stock prices with respect to the predetermined prices. There are different viewpoints on implementation of stock price limits. The negative or positive effects of implementing stock price limits haven’t yet been demonstrated. Those who advocate implementation of price limits claim that these measurements can reduce price volatility while not intervening in the transactions. On the contrary, the critics argue that price limit will make more volatility ( hypothesis of volatility extension), will prevent stock price to reach the balance level ( hypothesis for delay in reaching real price) and it will also intervene in transactions through limiting stock prices ( hypothesis of intervention in transactions). Different models and methods have been provided for measuring effectiveness of price limits in different global stock exchanges each of which are appropriate for certain conditions. To study the delay in reaching the real price, Z binomial test was used and Wilcoxon test was applied for studying intervention in transactions. 32 companies have been reviewed through the current research since 2000 to 2009. The results indicated that price limit can extend volatility and make delays in reaching the real prices. However, it doesn’t influence on intervening the transactions
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