TY - JOUR
T1 - Price Bands and Their Effects on Equity Markets
T2 - Evidence from a Natural Experiment
AU - Gatchev, Vladimir A.
AU - Seth, Rama
AU - Singh, Ajai
AU - Vishwanatha, S. R.
N1 - Published online: 27 May 2023.
PY - 2023/11
Y1 - 2023/11
N2 - We exploit a unique experiment, where the intraday price moves of Indian IPO listings are restricted within a narrow band, to examine the consequences of price bands for stock prices, investor trading behavior, and stock market liquidity. Based on difference-in-differences estimations, we find that price bands lead to a significant reduction in the price variability of IPO stocks. The decrease in variability is accompanied by increases in post-IPO selling by individual investors, the price impact of trades, and IPO expected returns. Bid-ask spreads remain similar. The findings provide new evidence on the effects of intraday price bands on equity markets.
AB - We exploit a unique experiment, where the intraday price moves of Indian IPO listings are restricted within a narrow band, to examine the consequences of price bands for stock prices, investor trading behavior, and stock market liquidity. Based on difference-in-differences estimations, we find that price bands lead to a significant reduction in the price variability of IPO stocks. The decrease in variability is accompanied by increases in post-IPO selling by individual investors, the price impact of trades, and IPO expected returns. Bid-ask spreads remain similar. The findings provide new evidence on the effects of intraday price bands on equity markets.
KW - Price limits
KW - Stock market liquidity
KW - Investor trading behavior
KW - Asset prices
KW - IPOs
KW - Price limits
KW - Stock market liquidity
KW - Investor trading behavior
KW - Asset prices
KW - IPOs
U2 - 10.1016/j.finmar.2023.100840
DO - 10.1016/j.finmar.2023.100840
M3 - Journal article
SN - 1386-4181
VL - 66
JO - Journal of Financial Markets
JF - Journal of Financial Markets
M1 - 100840
ER -