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- Title
PRICE LIMITS AND STOCK MARKET EFFICIENCY.
- Authors
Sang Bin Lee; Jee Seok Chung
- Abstract
In this article, the author examines the effect of price limits on tests for stock market efficiency hypothesis. The price limits have the potential of biasing the stock market efficiency hypothesis. Specifically, ignoring the limited prices are potentially problematic since the price limit is an important factor in determining the price movements. Nevertheless, the previous tests failed to find the existence of the price limit effects on market efficiency. This study explicitly included the structure of the price limits and the conditional heteroscedasticity in the econometric model for testing the stock market efficiency hypothesis. In conclusion, the evidence indicates that the price limits are the important features of the price movements. It is also found that the opening prices reflect the information that was not fully reflected in the previous day's limited closing price. Finally, the stock market appears to be inefficient because of the biased price movements due to the price limits. Using the proxy data series with the effects of price limits removed, it is hard to say that the stock market efficiency does not exist in the individual stock price series.
- Publication
Journal of Business Finance & Accounting, 1996, Vol 23, Issue 4, p585
- ISSN
0306-686X
- Publication type
Academic Journal
- DOI
10.1111/j.1468-5957.1996.tb01027.x