The role of dynamic and static volatility interruption: Evidence from the Korean stock markets

Abstract

We conduct a comprehensive analysis on the sequential introductions of dynamic and static volatility interruptions (VIs) in the Korean stock markets. The Korea Exchange introduced VIs to improve price formation, and to limit risk to investors from brief periods of abnormal volatility, for individual stocks. We find that dynamic VI is effective in price stabilization and 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.