Price Limits on a Call Auction Market: Evidence from the Warsaw Stock Exchange
Posted: 17 Jun 2004 Last revised: 1 Dec 2009
We empirically investigate the impact of price limits on volatility and autocorrelation in the call auction segment of the Warsaw Stock Exchange (WSE). Since call auctions offer time-out periods to investors, we do not expect price limits to counter overreaction and panic in this market structure. Indeed, our empirical findings show that price limits result in excess volatility on the next trading day and strong continuation of price movements, which indicates that price limits only delay the adjustment of prices to equilibrium levels. Our results question the necessity of price limits in the call auction system of the WSE.
Keywords: Price limits, Call auction, Return autocorrelation, Volatility, Polish stock market
JEL Classification: G12, G18
Suggested Citation: Suggested Citation