The Study of the Impact of Price Limits and Trading Halts on Trading Activities, Liquidity and Price Volatility in the Tehran Stock Exchange

Document Type : Research Paper

Authors

1 Prof., Department of Accounting & Financial, Faculty of Economics, Management and Accounting, Yazd University, Yazd, Iran

2 MSc., Department of Accounting and Finance, Faculty of Economics, Management and Accounting, Yazd University, Yazd, Iran

Abstract

Objective: This study is aimed at examining the relative performance of trading halts and price limits in the Tehran Stock Exchange. In this research, we determined if the mechanisms involved in trading halts and price limits in the Tehran Stock Exchange affect the market variables or not. This was done through studying the trading activity, liquidity, volatility and abnormal returns. We have also examined the efficiency of the mechanisms involved in trading halts with respect to the price limits. Methods: In this study, the pre and post events period’s average changes were compared to test the relative performance of the trading halts and price limits. We examined 400 trading suspensions and 893 price limits related to 80 companies from 1392 to 1396, and the data was selected by the omissive sampling method. The hypothesis test has been performed using the SPSS software, the mean comparison method and Wilcoxon test. Results: Through testing the hypotheses it was concluded that the trading activity reduces after trading halts but increases after price limits. On the other hand, liquidity increases after the trading halt, but reduces after prices limits. The results also show that volatility reduces after trading halts although there is no significant difference after price limits. Meanwhile the result also show that abnormal returns increase after trading halts but decreases after price limits. Conclusion: According to the volatility and liquidity criteria, trading halts are more efficient, but based on the trading activity and abnormal returns criteria, price limits seem to be more efficient. Therefore, in order to compare the relative performance of the trading halts and price limit in the Tehran Stock Exchange, we cannot express a definitive opinion. 
 

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References

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Financial Research Journal
Volume 21, Issue 2
2019
Pages 213-236

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