The magnetic attraction of price limits
International Journal of Business
This paper utilizes a natural experiment on the Egyptian Stock Exchange, where a tight symmetric 5 percent limit was imposed from 1997-2002, to test for the 'magnet effect' of price limits and provides evidence that it exists and is economically significant. I employ a logit model of the probability of reaching a limit with pooled time series data from individual firms across two sub-periods: a period with price limits versus one without. The result of this comparison shows that the conditional probability of reaching a limit rose after imposing the limits, substantiating the evidence on the presence of a magnet effect in markets with tight price limits.
(2011). The magnetic attraction of price limits. International Journal of Business, 16(1), 35–50.
Tooma, Eskandar A.
"The magnetic attraction of price limits." International Journal of Business, vol. 16,no. 1, 2011, pp. 35–50.