The Existence of Pareto Superior Price Limits and Trading Halts
dc.contributor.author | Kodres, Laura E. | en_US |
dc.date.accessioned | 2013-11-14T23:21:26Z | |
dc.date.available | 2013-11-14T23:21:26Z | |
dc.date.issued | 1991-02 | en_US |
dc.identifier.other | MichU DeptE CenREST W91-5 | en_US |
dc.identifier.other | G120 | en_US |
dc.identifier.other | G130 | en_US |
dc.identifier.uri | https://hdl.handle.net/2027.42/100818 | |
dc.description.abstract | We examine the welfare effects of price limits and trading halts in a linear mean-variance model of stock and futures trading. We suppose that shocks to liquidity and fundamentals occur between the time investors decide to trade and the time their orders are executed and cannot be insured with contingent claims. This gives rise to implementation risk that is not transferred optimally among investors. Price limits (or price contingent trading halts) serve to partially insure implementation risk. We show that when price fluctuations are due solely to news about fundamentals, judiciously chosen price limits are (ex ante) pareto superior to unconstrained trade. When liquidity shocks are large, then some speculators lose, but hedgers still benefit from price limits. | en_US |
dc.description.sponsorship | Center for Research on Economic and Social Theory, Department of Economics, University of Michigan | en_US |
dc.relation.ispartofseries | CREST Working Paper | en_US |
dc.subject | Price Limits | en_US |
dc.subject | Trading Halts | en_US |
dc.subject | Implementation Risk | en_US |
dc.subject.other | Asset Pricing | en_US |
dc.subject.other | Trading Volume | en_US |
dc.subject.other | Bond Interest Rates | en_US |
dc.subject.other | Contingent Pricing | en_US |
dc.subject.other | Futures Pricing | en_US |
dc.subject.other | Option Pricing | en_US |
dc.title | The Existence of Pareto Superior Price Limits and Trading Halts | en_US |
dc.type | Working Paper | en_US |
dc.subject.hlbsecondlevel | Economics | en_US |
dc.subject.hlbtoplevel | Social Sciences | en_US |
dc.description.bitstreamurl | http://deepblue.lib.umich.edu/bitstream/2027.42/100818/1/ECON277.pdf | |
dc.owningcollname | Economics, Department of - Working Papers Series |
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Economics, Department of - Working Papers Series
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