Flexible price limits: The case of Tokyo Stock Exchange

► We argue that daily price limits imposed by stock exchanges are too rigid and hence can cause volatility spill-over, disrupt price discovery and liquidity provision in the market. ► We propose flexible price limits that uses predicted probability of volatility spill-over and consecutive price limit hits. ► We provide empirical evidence in support on the advantageous of flexible price limits by using 5 years intra-day data of stocks listed on the Tokyo Stock Exchange.