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Volume :11 Issue : 3 2004      Add To Cart                                                                    Download

Price Limits and Stock Market Volatility: Evidence from the Amman Stock Exchange

Auther : Aktham I. Maghyereh

This paper provides empirical evidence on effect of price limits policy on stock price volatility in the Amman Stock Exchange (ASE) during the period between 1998 and 2002. Seventeenth Jordanian individual stocks are adopted here. These stocks were selected based on their liquidity and trading volume. Based on our cross-section of stocks, the results show that the price limits policy does not have the desired effect on stock price volatility in the ASE. The policy implication of this empirical finding suggests that the market should consider either reducing the existing distortions by making the price limits more binding (i.e., by narrowing the current range of permissible price changes), or introducing an alternative type of circuit breaker, such as trading halts adopted for index declines in several mature markets.

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