Price limits, Stochastic volatility, Market efficiency, Emerging markets


This paper empirically evaluates the impact of return volatility from widening price limits from 5% to 10% on the Nigerian Stock Exchange(NSE) on September 18, 2012 using a Stochastic Volatility model in an event study framework. Using daily trading data from September 2010 to September 2014, the study finds that widening of price limits in the NSE has not increased volatility as feared by some regulators. Stocks with higher free floats and institutional ownership display lower volatility when price limits are widened. This suggests that smaller stock exchanges can improve market efficiency by widening price limits without increasing volatility. The findings also suggest the benefits of widening price limits in improving the price discovery process outweighs any costs associated with irrational behavior by market participants.

Author Bio

Dr. Mohmmed Yadudu is a staff of Business Administration, Bayero University, Kano.

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