Estimating The Effect of Price Limits on Limit-Hitting Days  

Oleh:

Li, Gan ; Chung, Jeff

Jenis: Article from Journal - ilmiah internasional
Dalam koleksi: The Econometrics Journal vol. 8 no. 1 (2005), page 79-96.
Topik: limits; price limits; normal mixture
Fulltext: 79.pdf (130.99KB)

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Perpustakaan Pusat (Semanggi) Nomor Panggil: EE39.1 Non-tandon: 1 (dapat dipinjam: 0) Tandon: tidak ada

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This study examines whether price limits affect underlying equilibrium prices on limit - hitting days. To identify two effects - a ceiling effect and a cooling or heating effect (C – H effect) - we use the fact that equilibrium prices are reached at the day immediately after price limits are hit. We estimate the C – H effect by letting the return series be mixture normal to capture the possible 'fat tails.' We apply our models to five randomly selected Taiwanese stocks and all the continuously traded stocks in our sample period. The simple normal density which would lead one to conclude that price limits can 'cool off' stock prices is soundly rejected. However, if normal mixture density is used, one would generally conclude that price limits will have no effect on the variance of stock returns.

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