Abstract
There has been considerable discussion in policy circles about controlling volatility by imposing price limits on asset prices. This study examines the effects of price limits on a stock market by testing volatility spillover, delayed price discovery, and trading interference hypotheses in a leading emerging market, Istanbul Stock Exchange (ISE), which has a unique microstructure with related to price limits. Our results support volatility spillover, delayed price discovery, and trading interference hypotheses. We also show price locks at limits measured by Volume-Weighted Average Prices provide significantly stronger evidence regarding the effects of price limits than measurement of limit moves only. Finally, price limits have a significant impact on stock market, casting doubt on their effectiveness in financial markets.
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