Are price limits priced? Evidence from the Taiwan stock exchange

Naughton, A and Veeraraghavan, M 2004, 'Are price limits priced? Evidence from the Taiwan stock exchange', Journal of Emerging Market Finance, vol. 3, no. 3, pp. 249-267.


Document type: Journal Article
Collection: Journal Articles

Title Are price limits priced? Evidence from the Taiwan stock exchange
Author(s) Naughton, A
Veeraraghavan, M
Year 2004
Journal name Journal of Emerging Market Finance
Volume number 3
Issue number 3
Start page 249
End page 267
Total pages 18
Publisher Sage Publications
Abstract In this article, a multifactor asset pricing model incorporating a price limit factor is developed to explain the cross section of asset returns following closely the mimicking portfolio methodology of Fama and French (1996). Differing regulatory environments in the Asian region suggest that empirical studies consider the features of each market. Price limits on the daily movement of stock prices are common in the emerging markets of Asia; however, research on the sensitivity of asset prices to price limits has been lacking. Prior research suggests that price limits are a significant institutional feature of the Taiwan Stock Exchange and this market is used for empirical analysis. Our findings show that the overall market factor, firm size and price limits capture the cross section of average stock returns in a meaningful manner. However, caution is needed as the relationship between excess returns, firm size and price limits remains primarily at an empirical level. Opinion also remains divided as to whether explanatory factors in addition to the market are in fact a premium for risk, or are simply associated with firm characteristics.
Subject Finance
DOI - identifier 10.1177/097265270400300302
ISSN 0972-6527
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