Price Limits Performance: Evidence from the Kuala Lumpur Stock Exchange

Abstract

Abstract. In this paper we examine the performance of price limits enforced by the KLSE to curb excessive short-term price volatility. Three hypotheses were used: first to test the effectiveness of price limits on price volatility; second, the effectiveness of price limits on the price discovery process and finally the effectiveness of price limits on the interference of trading activity. Our evidence appears to suggest that price limits cause a higher volatility level, delay efficient price discovery process and interfere with trading activity.