The Influence of Price Limits on Overreaction in Emerging Markets: Evidence from the Egyptian Stock Market

Hisham Farag

doi:10.1016/j.qref.2015.01.003

The Influence of Price Limits on Overreaction in Emerging Markets: Evidence from the Egyptian Stock Market

Hisham Farag

Finance

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4 Citations (Scopus)

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Abstract

The main objective of this paper is to investigate the influence of price limits on the overreaction hypothesis in the Egyptian stock market (EGX) during the period 1999–2010. I find evidence of the overreaction anomaly in the EGX within different price limit regimes. Price reversal is observed two and three days post lower and upper limit hits respectively within the strict price limits regime. However, it occurs after one day only for both lower and upper limit hits within the circuit breakers regime. These results support the directional effect hypothesis as large stock price movements are followed by price reversals in the opposite direction. Moreover, the results support the magnitude effect hypothesis as the larger the initial price movements the greater the subsequent reversals.

Original language	English
Journal	The Quarterly Review of Economics and Finance
Early online date	27 Jan 2015
DOIs	https://doi.org/10.1016/j.qref.2015.01.003
Publication status	E-pub ahead of print - 27 Jan 2015

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10.1016/j.qref.2015.01.003

Farag_Influence_price_limits_Quarterly_Review_Economics_Finance_2015
NOTICE: this is the author’s version of a work that was accepted for publication in The Quarterly Review of Economics and Finance. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in The Quarterly Review of Economics and Finance, DOI: 10.1016/j.qref.2015.01.003. Eligibility for repository checked March 2015
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Cite this

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abstract = "The main objective of this paper is to investigate the influence of price limits on the overreaction hypothesis in the Egyptian stock market (EGX) during the period 1999–2010. I find evidence of the overreaction anomaly in the EGX within different price limit regimes. Price reversal is observed two and three days post lower and upper limit hits respectively within the strict price limits regime. However, it occurs after one day only for both lower and upper limit hits within the circuit breakers regime. These results support the directional effect hypothesis as large stock price movements are followed by price reversals in the opposite direction. Moreover, the results support the magnitude effect hypothesis as the larger the initial price movements the greater the subsequent reversals.",

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AB - The main objective of this paper is to investigate the influence of price limits on the overreaction hypothesis in the Egyptian stock market (EGX) during the period 1999–2010. I find evidence of the overreaction anomaly in the EGX within different price limit regimes. Price reversal is observed two and three days post lower and upper limit hits respectively within the strict price limits regime. However, it occurs after one day only for both lower and upper limit hits within the circuit breakers regime. These results support the directional effect hypothesis as large stock price movements are followed by price reversals in the opposite direction. Moreover, the results support the magnitude effect hypothesis as the larger the initial price movements the greater the subsequent reversals.

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The Influence of Price Limits on Overreaction in Emerging Markets: Evidence from the Egyptian Stock Market

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