Investigation of the Effects of Price Limit Changes on the Intraday Volatility of Iran’s Stock Market Using Realized Variance (RV) and District Fourier Transform (DFT)

In this paper, the effect of a change in price limit on Iran’s stock market and its volatility was studied by applying two methods. One was Realized Variance (RV) before and after the price change was applied and the other was District Fourier Transform (DFT), which was applied to intraday price changes before and after changes occurred to the price limits so that the volatility could be studied at different frequencies. Using RV, it was found that the effects of a price limit change on all the markets and industries were not the same. As we witnessed, a change from a limit of ±10% to ±3% in the yellow market actually resulted in a more volatile market, while a change from a limit of ±10% to ±2% in the orange market did not result in a significantly more volatile market. The results of DFT showed that a tighter price limit increased the volatility; however, the effects were not the same at different frequencies. In conclusion, narrowing the price limit did not necessarily result in a decline in intraday volatility. Even in some cases, severe narrowing of the price limit could lead to an increase in the intraday volatility of stock prices.