Price Bands and Their Effects on Equity Markets: Evidence from a Natural Experiment

Vladimir A. Gatchev*, Rama Seth, Ajai Singh, S. R. Vishwanatha

*Corresponding author for this work

Research output: Contribution to journalJournal articleResearchpeer-review

Abstract

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.
Original languageEnglish
Article number100840
JournalJournal of Financial Markets
Volume66
Number of pages18
ISSN1386-4181
DOIs
Publication statusPublished - Nov 2023

Bibliographical note

Published online: 27 May 2023.

Keywords

  • Price limits
  • Stock market liquidity
  • Investor trading behavior
  • Asset prices
  • IPOs

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