VOLATILITY SPILLOVER AROUND PRICE LIMITS IN AN EMERGING MARKET

Aktas, Osman Ulas; Kryzanowski, Lawrence; Zhang, Jie

Abstract The intraday volatility effects of price-limit hits for stocks in the BIST-50 index during a volatile period are examined. Our evidence supports the volatility no-effect, dampening and spillover hypotheses depending on whether the lower or upper price limit is hit and on when the hit begins and ends. Post-hit volatilities tend to be lower for limit hits near the beginning of the first trading session, unchanged for those that transcend a trading session and for upper price-limit hits near the end of either trading session, and higher for lower price-limit hits near the end of either trading session. These results are robust using samples differentiated by cross-listed status, same-day news, equi-distant and trade-by-trade returns and volatility measures accounting for return-series autocorrelations. Our findings have implications for emerging markets planning to impose price-limit bands or to increase their efficacy.