A Transitory and asymmetric properties in price limits: Korean evidence with intra-day data

Abstract

This study empirically investigates transitory and asymmetric properties in price limits at the Korean Stock Exchange. Even though the re has been much empirical research for or against price limits in the literature, we point out two flaws to be remedied. First, most research has used inter-day data rather than intra-day data, which has resulted in ignoring the underlying forces to determine stock prices. Second, they have assumed that the effects of price limits are symmetric across upper price limits and lowe r price limits. The asymmetric effect would not be detected without using the intra-day data. Spec ifically, the adverse effects of price limits such as trading inference are stronger when prices hit upper limits rather than lower limits. Having obse rved the asymme tric and transitory features of price limits, we suggest that the magnitude of the upper limit should be bigger than that of the lower limit in order to strike the balance be tween the market efficiency enhancement and volatility reduction.