Stocks fell 4.4 percent yesterday after becoming the best performing stock exchange in the world.
Even after yesterday's fall Sri Lanka stocks were up over 90 percent.
Stocks continued to fall after trading resumed, but recovered some losses later with institutional buying returning, brokers said.
Sri Lankan stocks are trading high multiples compared to the region and a correction has been expected to prevent the build up of a bigger bubble, according to analysts.
Even after yesterday fall,the market price to earnings multiple on historical earnings was over 25 times.