Price Limits on a Call Auction Market: Evidence from the Warsaw Stock Exchange

Posted: 17 Jun 2004 Last revised: 1 Dec 2009

See all articles by Harald Henke

Harald Henke

European University Viadrina, Frankfurt (Oder)

Svitlana Voronkova

Centre for European Economic Research (ZEW)

Abstract

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

Henke, Harald and Voronkova, Svitlana, Price Limits on a Call Auction Market: Evidence from the Warsaw Stock Exchange. International Review of Economics and Finance, Vol. 14, No. 4, pp. 439-453, Available at SSRN: https://ssrn.com/abstract=556604

Harald Henke (Contact Author)

European University Viadrina, Frankfurt (Oder) ( email )

Department of Finance and Capital Market Theory
Gr. Scharrnstr. 59
15230 Frankfurt (Oder)
Germany

Svitlana Voronkova

Centre for European Economic Research (ZEW) ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

HOME PAGE: http://www.zew.de/de/mitarbeiter/mitarbeiter.php3?action=mita&kurz=sva

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