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Author Chan, Soon Huat ♦ Kim, Kenneth A. ♦ Rhee, S. Ghon
Source CiteSeerX
Content type Text
File Format PDF
Subject Domain (in DDC) Computer science, information & general works ♦ Data processing & computer science
Subject Keyword Limit Order Book ♦ Transaction Data ♦ Price Limit Performance ♦ Stock Exchange ♦ Price Discovery ♦ Information Asymmetry ♦ Price Limit ♦ Order Imbalance ♦ Daily Price Limit ♦ Informed Trader ♦ Wide Price Limit ♦ Price Limit Mechanism ♦ Market Efficiency ♦ Individual Security ♦ Serious Cost ♦ Distinguished Panelist ♦ Narrower Limit ♦ Recent Year ♦ Price Limit Level ♦ Limit Order Book Hello ♦ Arrival Rate ♦ Limit Band ♦ Trade-to-trade Transaction Data ♦ Kuala Lumpur Stock Exchange
Abstract In recent years, organized stock exchanges with daily price limits adopted wider limits as narrower limits were criticized for jeopardizing market efficiency. This study examines the impact of a wide price limit on price discovery processes, using the data from the Kuala Lumpur Stock Exchange. Specifically, examined is the impact of daily price limits on (i) information asymmetry; (ii) arrival rates of informed traders; and (iii) order imbalance. Using both trade-to-trade transaction data and the limit order book, we compile evidence that price limits do not improve information asymmetry, delays arrival of informed traders, and exacerbates order imbalance. These results suggest that price limits on individual securities do not improve price discovery processes, but impose serious costs even when the limit band is as wide as 30 percent. Price Limit Performance: Evidence from Transactions Data and the Limit Order Book “Hello, my name is (deleted) and I am an official from the stock exchange of (deleted). I have a question for the distinguished panelists. Our stock exchange is seriously considering the adoption of price limit mechanisms to protect our markets. Can anyone tell me what price limit level we should use? ” One panelist replied: “To be honest, I don’t
Educational Role Student ♦ Teacher
Age Range above 22 year
Educational Use Research
Education Level UG and PG ♦ Career/Technical Study