The Effects of Price Limits on Common Stock Price Behavior: Evidence from the High Technology Firms in Taiwan

• Main Authors: Shu-Hua Hung, 洪淑華
• Other Authors: none
• Format: Others
• Language: zh-TW
• Published: 2002
• Online Access: http://ndltd.ncl.edu.tw/handle/24492070584712926722

碩士 === 朝陽科技大學 === 財務金融系碩士班 === 90 === Abstract Price limits systems are worldwide adopted to stabilize the securities markets. There are studies leading to various outcomes in the field. In this paper, we are noticed large span of price on lower-price effect, and also stock price changes in price limits systems. In this study, we select the data of high-tech daily stock prices of TSEC between January 1, 1997 and December 31, 1998. Price limits of trading activities could lead the differences of stock exchange. During the post-limit-day period, the indicated stock prices drop as much as the volatility of other stock categories. Price limits have effectively reduced volatility citing volatility decreases after upper price limits reached. The empirical studies could not support the volatility spillover hypothesis. In delayed price discovery hypothesis, for stocks that experience limit-hits, price continuations occur more frequently than for stocks that do not reach limits. Indeed, current price limits delay the efficient price discovery process. The evidence supports the delayed price discovery hypothesis. On upper limit hit of trading interference hypothesis, for stocks that experience limit-hits, trading activity increases on the day after the limit day, while all other stock subgroups experience drastic trading activity declines. This find could support the trading interference hypothesis. On the contrary, the evidence of lower limit hit could not support the trading interference hypothesis. The price limits make no difference for all high-tech, lower-price and upper-price stocks. Revealing price limits effect of either upper-price or lower-price is no significant difference. Therefore, stocks price are affected by different price limits. The empirical result showing that effectiveness of price limits are not equal. The price limits seem to cause delays in equilibrium price discovery and desired trading activities. Furthermore, price limits in countering overreaction and in reducing volatility are effective.