Financial Management Focus on Price Volatility and ‘Circuit Breakers’ in the Nigerian Equity Market Implications for Monetary Policy

This study investigates the impact of price limits and trading halts (circuit breakers) on the returns volatility of the Nigerian equity markets during the market meltdown occasioned by the Global Financial and Economic Crises of 2007-2010. Results indicate that the introduction of price limits and trading halts moderated the volatility in the market. More significantly, price volatility of equity returns reduced as the price limit symmetric band was increased from 5 percent to 10 percent indicating positive correlation between lower volatility and higher symmetric price limit bands. Furthermore, symmetric price limits proved more effective than asymmetric ones. The introduction of price limits orchestrated market information inefficiency which may have undermined liquidity conditions in the market. Results on Granger causality indicate unidirectional causal flow from equity returns volatility to traded volume suggesting that equity returns volatility may predict volume volatility and provide information on the thresholds of price limit bands to be introduced in the market during extreme price fluctuations