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Activity Number:
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210
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Type:
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Contributed
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Date/Time:
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Monday, August 7, 2006 : 2:00 PM to 3:50 PM
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Sponsor:
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Business and Economics Statistics Section
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| Abstract - #306133 |
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Title:
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The Magnet Effect of Price Limits: Evidence from Transactions Data
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Author(s):
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Ping-Hung Hsieh*+ and Yong H. Kim and J. Jimmy Yang
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Companies:
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Oregon State University and University of Cincinnati and Oregon State University
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Address:
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200 Bexell, Corvallis, OR, 97331,
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Keywords:
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magnet effect ; transactions data ; Taiwan stock exchange ; logistic regression ; price limits
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Abstract:
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We investigate the magnet effect of price limits using transactions data from the Taiwan Stock Exchange. Using a logistic regression model that incorporates explanatory variables documented in the microstructure literature to capture transaction price changes, we found that the conditional probability of price going up (down) increases significantly when the price is approaching the upper (lower) price limit, supporting the magnet effect. We found that the magnet effect starts to emerge when the price is within 10 ticks from the upper price limits and about 5 ticks from the lower price limits. We also examined firm characteristics to identify possible determinants of magnet effect and found that beta, trading volume, market capitalization, and book-to-market are positively related to the degree of magnet effect. Our overall findings generate important policy implications.
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