Do price limits hurt the market?

Authored by Chia-Hsuan Yeh, Chun-Yi Yang

Date Published: 2013-04

DOI: 10.1007/s11403-012-0107-4

Sponsors: National Science Council of Taiwan

Platforms: No platforms listed

Model Documentation: Other Narrative Mathematical description

Model Code URLs: Model code not found

Abstract

Under an artificial stock market composed of bounded-rational and heterogeneous traders, this paper examines whether or not price limits generate the negative effects on the market. Through testing the volatility spillover hypothesis, the delayed price discovery hypothesis, and the trading interference hypothesis, we find that no evidence of volatility spillover is observed. However, the phenomena of delayed price discovery and trading interference indeed exist, and their significance depends on the level of the price limits.

Tags

Agent-based modeling Artificial stock market genetic programming Price limits