A Study on the Effect of Price Limit : Evidence from Taiwan 50 Index

• Main Authors: Yi-Shan Chen, 陳怡珊
• Other Authors: Ai-Chi Hsu
• Format: Others
• Language: zh-TW
• Published: 2010
• Online Access: http://ndltd.ncl.edu.tw/handle/21284126096095421477

碩士 === 雲林科技大學 === 財務金融系碩士班 === 98 === Taiwan has carried out ETF (Exchange Traded Funds) into international market recently. But ETF faces a problem of different price limits in bilateral stock markets when it is listed in the mainland market. In order to find out the best appropriate range of price limit for bilateral stock markets, we should discuss Taiwan’s price limit firstly. Therefore, we work on the effect and volatility of price limit in Taiwan. Samples are 5-minute intraday data of Taiwan 50 Index from September 1st, 2008 to August 31st, 2009. We use logistic regression and Wilcoxon test for empirical analysis. The empirical results of this study can be divided into the following three points.First, on the upper (lower) limit hit day, when stock price is close to price limits, the probability of its up (down) will be lower. It means that price limit produces cool-off effect. Second, on the upper (lower) limit hit day, when stock price is close to price limit, stock price’s variance will be generally lower, that is, stock price’s volatility will be reduced. After hitting price limit, stock price’s volatility will also be lower. It means that the probability of continuing to rise and fall will be decreased. Third, we find that the companies hitting price limit easily, 35 companies which Betas are bigger than one, have the same empirical results with Taiwan 50 Index. When stock price is close to price limit, the probability of its up (down) will be lower, and stock price’s volatility will also be decreased. Therefore, the empirical result finds that price limit in Taiwan stock market can implement the purpose of setting price limit at the beginning, bring the cooling effect, give investors time to make reasonable investment decisions rationally and reduce volatility in the stock market.