Price limit bands, risk-return trade-offand asymmetric volatility: Evidence fromTunisian Stock Exchange sectors

Authors

DOI:

https://doi.org/10.18559/ebr.2024.3.1604

Keywords:

wider price limits, narrow price limits, risk-return tradeoff, asymmetric volatility

Abstract

This paper explores the impact of imposing various price limit bands on risk-return trade-off and asymmetric volatility on the Tunisian Stock Exchange (TSE). The study applies the EGARCH-M approach during the period spanning from 2 January 2019 to 31 January 2024, covering the periods before, during, and after the COVID-19 era. During the COVID-19 period, the TSE reduced the per-session price limit to protect investors from severe price fluctuations. Despite this protective measure, the results show that higher volatility is compensated by lower returns on all sectors’ returns. After the crisis, as a first step, the TSE widened the price limits, but subsequently, it narrowed them. The results show that the shift from the wider price limit regime to the narrow price limits regime structurally modifies volatility for small and large cap sectors.

Downloads

Download data is not yet available.

References

1. Alzyadat, J., & Asfoura, E. (2021). The effect of COVID-19 pandemic on stock market: An empirical study in Saudi Arabia. Journal of Asian Finance, Economics and Business, 8(5), 913–921. https://doi.org/10.13106/JAFEB.2021.VOL8.NO5.0913
View in Google Scholar

2. Bakry, W., Kavalmthara, P., Saverimuttu, V., Liu, Y., & Cyril, S. (2022). Response of stock market volatility to COVID-19 announcements and stringency measures: A compar- ison of developed and emerging markets. Finance Research Letters, 46, 102350. https://doi.org/10.1016/j.frl.2021.102350 DOI: https://doi.org/10.1016/j.frl.2021.102350
View in Google Scholar

3. Berkman, H., & Lee, J. (2002). The effectiveness of price limits in an emerging market: Evidence from the Korean Stock Exchange. Pacific-basin Finance Journal, 10(5), 517–530. https://doi.org/10.1016/S0927-538X(02)00040-9 DOI: https://doi.org/10.1016/S0927-538X(02)00040-9
View in Google Scholar

4. Bora, D., & Basistha, D. (2021). The outbreak of COVID-19 pandemic and its impact on stock market volatility: Evidence from a worst-affected economy. Journal of Public Affairs, 21(4), e2623. https://doi.org/10.1002/pa.2623 DOI: https://doi.org/10.1002/pa.2623
View in Google Scholar

5. Cepoi, C. (2020). Asymmetric dependence between stock market returns and news during COVID-19 financial turmoil. Finance Research Letters, 36, 101658. https://doi.org/10.1016/j.frl.2020.101658 DOI: https://doi.org/10.1016/j.frl.2020.101658
View in Google Scholar

6. Chen, M. (2015). Risk-return tradeoff in Chinese stock markets: Some recent evi- dence. International Journal of Emerging Markets, 10(3), 448–473. https://doi.org/10.1108/IJOEM-06-2012-0058 DOI: https://doi.org/10.1108/IJoEM-06-2012-0058
View in Google Scholar

7. Chen, X., Wang, Z., Li, X., Liu, Z., & Li, K. (2021). The impact of Covid-19 on the securities market: Evidence from Chinese Stock and Bond Markets. Procedia Computer Science, 187, 294–299. https://doi.org/10.1016/J.PROCS.2021.04.065 DOI: https://doi.org/10.1016/j.procs.2021.04.065
View in Google Scholar

8. Chiang, T., Li, H., & Zheng, D. (2015). The intertemporal risk-return relationship: Evidence from international markets. Journal of International Financial Markets, Institutions and Money, 39, 156–180. https://doi.org/10.1016/J.INTFIN.2015.06.003 DOI: https://doi.org/10.1016/j.intfin.2015.06.003
View in Google Scholar

9. Deb, S. S., Kalev, P. S., & Marisetty, V. B. (2017). Price limits and volatility. Pacific-Basin Finance Journal, 45, 142–156. https://doi.org/10.1016/J.PACFIN.2016.12.002
View in Google Scholar

10. Deb, S. S., Kalev, P. S., & Marisetty, V. B. (2017). Price limits and volatility. Pacific-Basin Finance Journal, 45, 142–156. https://doi.org/10.1016/J.PACFIN.2016.12.002 DOI: https://doi.org/10.1016/j.pacfin.2016.12.002
View in Google Scholar

11. Engle, R., Lilien, D., & Robins, R. (1987). Estimating time varying risk premia in the term structure: The Arch-M model. Econometrica, 55(2), 391–407. https://doi.org/10.2307/1913242 DOI: https://doi.org/10.2307/1913242
View in Google Scholar

12. Engle, R. F., & Ng, V. K. (1993). Measuring and testing the impact of news on volatility. Journal of Finance, 48(5), 1749–1778. https://doi.org/10.1111/j.1540-6261.1993.tb05127.x DOI: https://doi.org/10.1111/j.1540-6261.1993.tb05127.x
View in Google Scholar

13. Engelhardt, N., Krause, M., Neukirchen, D., & Posch, P. (2021). Trust and stock market volatility during the COVID-19 crisis. Finance Research Letters, 38, 101873. https://doi.org/10.1016/j.frl.2020.101873 DOI: https://doi.org/10.1016/j.frl.2020.101873
View in Google Scholar

14. Fakhfekh, M., Jeribi, A., & Salem, M. (2021). Volatility dynamics of the Tunisian stock market before and during the COVID-19 outbreak: Evidence from the GARCH family models. International Journal of Finance & Economics, 28(2), 1653–1666. https://doi.org/10.1002/ijfe.2499 DOI: https://doi.org/10.1002/ijfe.2499
View in Google Scholar

15. Farag, H. (2013). Price limit bands, asymmetric volatility and stock market anomalies: Evidence from emerging markets. Global Finance Journal, 24(1), 85–97. https://doi.org/10.1016/J.GFJ.2013.03.002 DOI: https://doi.org/10.1016/j.gfj.2013.03.002
View in Google Scholar

16. Farag, H. (2015). The influence of price limits on overreaction in emerging markets: Evidence from the Egyptian stock market. The Quarterly Review of Economics and Finance, 58, 190–199. https://doi.org/10.1016/J.QREF.2015.01.003 DOI: https://doi.org/10.1016/j.qref.2015.01.003
View in Google Scholar

17. Farag, H., & Cressy, R. (2012). Stock market regulation and news dissemination: evidence from an emerging market. The European Journal of Finance, 18(3–4), 351– 368. https://doi.org/10.1080/1351847X.2011.579740 DOI: https://doi.org/10.1080/1351847X.2011.579740
View in Google Scholar

18. Fernandez-Perez, A., Gilbert, A., Indriawan, I., & Nguyen, N. (2021). COVID-19 pan- demic and stock market response: A culture effect. Journal of Behavioral and Experimental Finance, 29, 100454. https://doi.org/10.1016/j.jbef.2020.100454 DOI: https://doi.org/10.1016/j.jbef.2020.100454
View in Google Scholar

19. Ghysels, E., Guérin, P., & Marcellino, M. (2014). Regime switches in the risk-return trade-off. Journal of Empirical Finance, 28, 118–138. https://doi.org/10.1016/J.JEMPFIN.2014.06.007 DOI: https://doi.org/10.1016/j.jempfin.2014.06.007
View in Google Scholar

20. Hansen, P., & Huang, Z. (2016). Exponential GARCH modeling with realized measures of volatility. Journal of Business & Economic Statistics, 34(2), 269–287. https://doi.org/10.1080/07350015.2015.1038543 DOI: https://doi.org/10.1080/07350015.2015.1038543
View in Google Scholar

21. He, P., Sun, Y., Zhang, Y., & Li, T. (2020). COVID–19’s impact on stock prices across different sectors—an event study based on the Chinese stock market. Emerging Markets Finance and Trade, 56(10), 2198–2212. https://doi.org/10.1080/15404 96X.2020.1785865 DOI: https://doi.org/10.1080/1540496X.2020.1785865
View in Google Scholar

22. Insaidoo, M., Arthur, L., Amoako, S., & Andoh, F. (2021). Stock market performance and COVID-19 pandemic: Evidence from a developing economy. Journal of Chinese Economic and Foreign Trade Studies, 14(1), 60–73. https://doi.org/10.1108/ JCEFTS-08-2020-0055 DOI: https://doi.org/10.1108/JCEFTS-08-2020-0055
View in Google Scholar

23. Just, M., & Echaust, K. (2020). Stock market returns, volatility, correlation and liquidity during the COVID-19 crisis: Evidence from the Markov switching approach. Finance Research Letters, 37, 101775. https://doi.org/10.1016/j.frl.2020.101775 DOI: https://doi.org/10.1016/j.frl.2020.101775
View in Google Scholar

24. Kim, K. (2001). Price limits and stock market volatility. Economics Letters, 71(1), 131–136. https://doi.org/10.1016/S0165-1765(00)00403-1 DOI: https://doi.org/10.1016/S0165-1765(00)00403-1
View in Google Scholar

25. Kim, K., & Park, J. (2010). Why do price limits exist in stock markets? A manipula- tion-based explanation. European Financial Management, 16(2), 296–318. https://doi.org/10.1111/j.1468-036X.2008.00456.x DOI: https://doi.org/10.1111/j.1468-036X.2008.00456.x
View in Google Scholar

26. Kim, K., & Rhee, S. (1997). Price limit performance: Evidence from the Tokyo Stock Exchange. Journal of Finance, 52(2), 885–901. https://doi.org/10.1111/J.1540-6261.1997.TB04827.X DOI: https://doi.org/10.1111/j.1540-6261.1997.tb04827.x
View in Google Scholar

27. Kim, K., Liu, H., & Yang, J. (2013). Reconsidering price limit effectiveness. Journal of Financial Research, 36(4), 493–518. https://doi.org/10.1111/JFIR.12021 DOI: https://doi.org/10.1111/jfir.12021
View in Google Scholar

28. Kim, Y., Yagüe, J., & Yang, J. (2008). Relative performance between trading halts and price limits: Evidence from the Spanish Stock Exchange. International Review of Economics & Finance, 17(2), 197–215. https://doi.org/10.2139/ssrn.407842 DOI: https://doi.org/10.1016/j.iref.2007.06.003
View in Google Scholar

29. Lee, S.-B., Kim, K.-J. (1995). The effect of price limit on stock price volatility: Empirical evidence in Korea. Journal of Business Finance & Accounting, 22(2), 257–267. https://doi.org/10.1111/j.1468-5957.1995.tb00682.x DOI: https://doi.org/10.1111/j.1468-5957.1995.tb00682.x
View in Google Scholar

30. Li, H., Zheng, D., & Chen, J. (2014). Effectiveness, cause and impact of price limit—Evidence from China’s cross-listed stocks. Journal of International Financial Markets, Institutions and Money, 29, 217–241. https://doi.org/10.1016/J.INTFIN.2013.12.007 DOI: https://doi.org/10.1016/j.intfin.2013.12.007
View in Google Scholar

31. Lin, C., & Chiao, C. (2020). Widening price limit effects: Evidence from an emerging stock market. Applied Economics, 52(13), 1476–1486. https://doi.org/10.1080/00036846.2019.1676388 DOI: https://doi.org/10.1080/00036846.2019.1676388
View in Google Scholar

32. Lo, G., Basséne, T., & Séne, B. (2022). COVID-19 And the african financial markets: Less infection, less economic impact? Finance Research Letters, 45, 102148. https://doi.org/10.1016/j.frl.2021.102148 DOI: https://doi.org/10.1016/j.frl.2021.102148
View in Google Scholar

33. Nelson, D. (1991). Conditional heteroskedasticity in asset returns: A new approach. Econometrica, 59(2), 347–370. https://doi.org/10.2307/2938260 DOI: https://doi.org/10.2307/2938260
View in Google Scholar

34. Okorie, D., & Lin, B. (2021). Stock markets and the COVID-19 fractal contagion effects. Finance Research Letters, 38, 101640. https://doi.org/10.1016/j.frl.2020.101640 DOI: https://doi.org/10.1016/j.frl.2020.101640
View in Google Scholar

35. Phylaktis, K., Kavussanos, M., & Manalis, G. (1999). Price limits and stock market volatility in the Athens Stock Exchange. European Financial Management, 5(3), 69–84. https://doi.org/10.1111/1468-036X.00080 DOI: https://doi.org/10.1111/1468-036X.00080
View in Google Scholar

36. Refai, H., & Hassan, G. (2018). The impact of market-wide volatility on time-varying risk: Evidence from Qatar Stock Exchange. Journal of Emerging Market Finance, 17(2), S239–S258. https://doi.org/10.1177/0972652718777083 DOI: https://doi.org/10.1177/0972652718777083
View in Google Scholar

37. Refai, H., Abdelaziz Eissa, M., & Zeitun, R. (2017). Asymmetric volatility and conditional expected returns: Evidence from emerging market sectors. International Journal of Emerging Markets, 12(2), 335–351. https://doi.org/10.1108/IJOEM-12-2015-0255 DOI: https://doi.org/10.1108/IJoEM-12-2015-0255
View in Google Scholar

38. Salvador, E., Floros, C., & Aragó, V. (2014). Re-examining the risk–return relationship in Europe: Linear or non-linear trade-off? Journal of Empirical Finance, 28, 60–77. https://doi.org/10.1016/J.JEMPFIN.2014.05.004 DOI: https://doi.org/10.1016/j.jempfin.2014.05.004
View in Google Scholar

39. Seddighi, H., & Yoon, I. (2018). Stock market efficiency and price limits: Evidence from Korea’s recent expansion of price limits. Asian Journal of Economics and Empirical Research, 5(2), 191–200. https://doi.org/10.20448/JOURNAL.501.2018.52.191.200 DOI: https://doi.org/10.20448/journal.501.2018.52.191.200
View in Google Scholar

40. Spiegel, M., & Subrahmanyam, A. (2000). Asymmetric information and news disclosure rules. Journal of Financial Intermediation, 9(4), 363–403. https://doi.org/10.1006/JFIN.2000.0294 DOI: https://doi.org/10.1006/jfin.2000.0294
View in Google Scholar

41. Szczygielski, J., Bwanya, P., Charteris, A., & Brzeszczyński, J. (2021). The only certainty is uncertainty: An analysis of the impact of COVID-19 uncertainty on regional stock markets. Finance Research Letters, 43, 101945. https://doi.org/10.1016/j.frl.2021.101945 DOI: https://doi.org/10.1016/j.frl.2021.101945
View in Google Scholar

42. Wan, X., Zhang, J. (2022). The effect of relaxing daily price limit: Evidence from the ChiNext market of China. Economics Letters, 215, 110509. https://doi.org/10.1016/j.econlet.2022.110509 DOI: https://doi.org/10.1016/j.econlet.2022.110509
View in Google Scholar

43. Wan, Y., Xie, W., Gu, G., Jiang, Z., Chen, W., Xiong, X., Zhang, W., & Zhou, W. (2015). Statistical properties and pre-hit dynamics of price limit hits in the Chinese Stock Markets. PLoS ONE, 10(4), e0120312. https://doi.org/10.1371/journal.pone.0120312 DOI: https://doi.org/10.1371/journal.pone.0120312
View in Google Scholar

44. Xu, D. (2022). Canadian stock market volatility under COVID-19. International Review of Economics & Finance, 77, 159–169. https://doi.org/10.1016/j.iref.2021.09.015 DOI: https://doi.org/10.1016/j.iref.2021.09.015
View in Google Scholar

45. Yu, X., Xiao, K., & Liu, J. (2022). Dynamic co-movements of COVID-19 pandemic anxieties and stock market returns. Finance Research Letters, 46, 102219. https://doi.org/10.1016/j.frl.2021.102219 DOI: https://doi.org/10.1016/j.frl.2021.102219
View in Google Scholar

46. Zhang, D., Hu, M., & Ji, Q. (2020). Financial markets under the global pandemic of COVID-19. Finance Research Letters, 36, 101528. https://doi.org/10.1016/j.frl.2020.101528 DOI: https://doi.org/10.1016/j.frl.2020.101528
View in Google Scholar

Downloads

Published

2024-09-26 — Updated on 2024-09-30

Versions

Issue

Vol. 10 No. 3 (2024)

Section

Research article- regular issue

License

Copyright (c) 2024 Othman Mnari, Bassma Faouel

Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.

How to Cite

Mnari, O., & Faouel, B. (2024). Price limit bands, risk-return trade-offand asymmetric volatility: Evidence fromTunisian Stock Exchange sectors. Economics and Business Review, 10(3), 142-162. https://doi.org/10.18559/ebr.2024.3.1604 (Original work published 2024)

Similar Articles

31-40 of 95

You may also start an advanced similarity search for this article.