Journal of Financial Markets Vol. 66 2023
Price bands and their effects on equity markets: Evidence from a natural experiment
open access
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.
- DOI
- 10.1016/j.finmar.2023.100840
- Volume
- 66
- Pages
- 100840
- Language
- en
- Sources
- crossref openalex