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The effectiveness of competing regulatory regimes and the switching effects: Evidence from an emerging market

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  • Farag, Hisham

Abstract

I investigate the effectiveness of two competing regulatory regimes and the effect of switching from strict price limits to circuit breakers on volatility spillover, and also on trading interference hypotheses. I find that switching to the circuit breakers' regime increases volatility and disrupts the price discovery mechanism. Stock prices are prevented from reaching their equilibrium levels and traders are unable to obtain their desired positions on limits hit day. Moreover, I find that volatility is spread out over the following 2days post-limit hits within the strict price limits regime. Finally, the results show that price limits interfere with trading activity and affect investors' beliefs and liquidity positions.

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  • Farag, Hisham, 2014. "The effectiveness of competing regulatory regimes and the switching effects: Evidence from an emerging market," Global Finance Journal, Elsevier, vol. 25(2), pages 136-147.
    • Handle: RePEc:eee:glofin:v:25:y:2014:i:2:p:136-147
    DOI: 10.1016/j.gfj.2014.06.005
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    Cited by:

    1. Clapham, Benjamin & Gomber, Peter & Haferkorn, Martin & Panz, Sven, 2017. "Managing excess volatility: Design and effectiveness of circuit breakers," SAFE Working Paper Series 195, Leibniz Institute for Financial Research SAFE.
    2. Hisham Farag, 2015. "Long-term Overreaction, Regulatory Policies and Stock Market Anomalies: Evidence from Egypt," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 14(2), pages 112-139, August.

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    More about this item

    Keywords

    Price limits; Circuit breakers; Volatility and trading behaviour;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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