Please use this identifier to cite or link to this item: http://hdl.handle.net/1893/11985
Appears in Collections:Accounting and Finance Journal Articles
Peer Review Status: Refereed
Title: Price limits in futures markets: Effects on the price discovery process and volatility
Authors: Veld-Merkoulova, Yulia V
Contact Email: j.w.veld-merkoulova@stir.ac.uk
Keywords: Futures markets
Price limits
Circuit breakers
Volatility
Issue Date: 2003
Publisher: Elsevier
Citation: Veld-Merkoulova YV (2003) Price limits in futures markets: Effects on the price discovery process and volatility, International Review of Financial Analysis, 12 (3), pp. 311-328.
Abstract: Price limits are actively employed by many futures exchanges as a regulatory mechanism directed at reducing volatility and improving price discovery process. The aim of this paper is to investigate whether price limits achieve these goals without affecting market liquidity for a number of agricultural futures contracts. We employ models of changing volatility in order to show that price limits do not appear to significantly reduce market volatility. In addition, we find evidence confirming the hypothesis that price limits delay price discovery instead of facilitating it. Our results also suggest that the impact of price limits on volatility and price reversals, found in previous studies, are mainly due to the properties inherent to the futures returns, such as volatility clustering. Finally, although trading decreases significantly due to the price limits, traders do not seem to switch from the contracts affected by price limits to other maturities in order to minimize the impact of circuit breakers.
Type: Journal Article
URI: http://hdl.handle.net/1893/11985
DOI Link: http://dx.doi.org/10.1016/S1057-5219(03)00009-7
Rights: The publisher does not allow this work to be made publicly available in this Repository. Please use the Request a Copy feature at the foot of the Repository record to request a copy directly from the author. You can only request a copy if you wish to use this work for your own research or private study.
Affiliation: Accounting and Finance

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