We examine whether or not or to what extent the daily price limit relaxation from 15% to 30% in the Korean market on June 15, 2015 changed stock price return volatility, theoretically and empirically. Specifically, we establish a theory on the effect of a price limit relaxation on stock return volatility and test the theory using 150 KOSDAQ and KOSPI stocks for various sample periods. We also interpret empirical results in search for their reasons. For robust results, we adopt three different volatility measures and five different sample periods. The theory finds an increase of the volatility of the returns of a stock when a price limit is relaxed. The empirical results find a few effects. of the price limit relaxation on the volatilities of Korean stocks. Above all, much more stocks increased their volatilities, rather than decreased. Also, volatility increase became more and more pronounced over time after the relaxation, and KOSDAQ stocks showed volatility increase in more predictable ways than KOSPI stocks. Finally, GARCH volatility fitted the theory least often and least predictably.​

Keywords.: Price Limit Relaxation; Volatility; KOSDAQ; KOSPI; GARCH