Seminar 217, Risk Management: The role of dynamic and static volatility interruptions: Evidence from the Korean stock markets

Seminar | March 1 | 12:30-2 p.m. | 1011 Evans Hall

 Speaker: Kyong Shik Eom, UC Berkeley

 Center for Risk Management Research

We conduct a comprehensive analysis on the sequential introductions of dynamic and static volatility interruption (VI) in the Korean stock markets. The Korea Exchange introduced VIs to improve price formation, and to limit damage to investors from brief periods of abnormal volatility, for individual stocks. We find that dynamic VI is effective in stabilizing markets and price discovery, while the effect of static VI is limited. The static VI functions similarly to the pre-existing price-limit system; this accounts for its limited incremental benefit.