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Effects of a price limit change on market stability at the intraday horizon in the Korean stock market

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  • Wonse Kim
  • Sungjae Jun

Abstract

This article investigates the effects of a price limit change on the volatility of the Korean stock market’s (KRX) intraday stock price process. Based on the most recent transaction data from the KRX, which experienced a change in the price limit on 15 June 2015, we examine the change in realized variance after the price limit change to investigate the overall effects of the change on the intraday market volatility. We then analyse the effects in more detail by applying the discrete Fourier transform to the data set. We find evidence that the market becomes more volatile in the intraday horizon because of the increase in the amplitudes of the low-frequency components of the price processes after the price limit change. Therefore, liquidity providers are in a worse situation than they were prior to the change.

Suggested Citation

  • Wonse Kim & Sungjae Jun, 2019. "Effects of a price limit change on market stability at the intraday horizon in the Korean stock market," Applied Economics Letters, Taylor & Francis Journals, vol. 26(7), pages 582-586, April.
    • Handle: RePEc:taf:apeclt:v:26:y:2019:i:7:p:582-586
    DOI: 10.1080/13504851.2018.1488043
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    Cited by:

    1. Zhang, Xiaotao & Wang, Ziqiao & Hao, Jing & He, Feng, 2022. "Price limit and stock market quality: Evidence from a quasi-natural experiment in the Chinese stock market," Pacific-Basin Finance Journal, Elsevier, vol. 74(C).
    2. Donald Lien & Pi-Hsia Hung & Chiu-Ting Pan, 2020. "Price limit changes, order decisions, and stock price movements: an empirical analysis of the Taiwan Stock Exchange," Review of Quantitative Finance and Accounting, Springer, vol. 55(1), pages 239-268, July.

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