Speaker: Kyong Shik Eom, UC Berkeley
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.