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- Title
Why Do Price Limits Exist in Stock Markets? A Manipulation-Based Explanation.
- Authors
Kim, Kenneth A.; Park, Jungsoo
- Abstract
Numerous stock market regulators around the world impose daily price limits on individual stock price movements. We derive a simple model that shows that price limits may deter stock market manipulators. Based on our model's implications, we predict that regulators impose price limit rules for markets where the likelihood of manipulation is high. We present empirical evidence consistent with this hypothesis. Our study is the first to formally propose a manipulation-based rationale for the existence of price limits in stock markets.
- Subjects
STOCK prices; STOCK price indexes; SPREAD (Finance); HYPOTHESIS; STOCK exchanges; STOCK ownership; GUIDELINES; HUMAN behavior
- Publication
European Financial Management, 2010, Vol 16, Issue 2, p296
- ISSN
1354-7798
- Publication type
Article
- DOI
10.1111/j.1468-036X.2008.00456.x