We argue that majority of the price limits imposed by stock exchanges are improper due to their rigid and objective criteria. We propose a flexible price limit system based on the predicted likelihood of improper price limit imposition. We suggest that if exchange-officials decide on relaxing or...

This paper proposes an improvement to the existing price limit systems. Using price limit data from Tokyo Stock Exchange, this study shows that price limits are costly when they obstruct rational price movements. Observable events, such as volatility spillovers and consecutive price limit hits,...

Daily price limits are criticized for their role in disrupting price adjustment process. We propose a flexible price limits mechanism as an alternative to daily price limit rules. First, we identify volatility spill-over and consecutive price limit hits as the source for disrupting informed...

Despite widely documented criticisms, price-limit rules are present in many equity markets around the world. Using a game-theoretic model, we argue that, if the cost of monitoring a market is high, price-limit rules are beneficial. Empirical tests based on a cross section of 43 equity markets...