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Price limits and the value premium in the Taiwan stock market

Author

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  • Lin, Chaonan
  • Ko, Kuan-Cheng
  • Lin, Lin
  • Yang, Nien-Tzu

Abstract

By proposing a measure of limit-hit frequency, this paper provides the first investigation to understand whether and how price limits are related to the cross-section of stock returns. Based on a sample of listed stocks in Taiwan, we show that the value premium is stronger among stocks with lower limit-hit frequency. This evidence is consistent with the prediction of the limited-attention explanation and rejects the limits-to-arbitrage hypothesis for the value premium in Taiwan. Further analyses indicate that the association between limit-hit frequency and the value premium is robust to several alternative explanations.

Suggested Citation

  • Lin, Chaonan & Ko, Kuan-Cheng & Lin, Lin & Yang, Nien-Tzu, 2017. "Price limits and the value premium in the Taiwan stock market," Pacific-Basin Finance Journal, Elsevier, vol. 41(C), pages 26-45.
    • Handle: RePEc:eee:pacfin:v:41:y:2017:i:c:p:26-45
    DOI: 10.1016/j.pacfin.2016.12.001
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    Cited by:

    1. Yang, Nien-Tzu & Chu, Hsiang-Hui & Ko, Kuan-Cheng & Lee, Shiou-Wen, 2018. "Continuing overreaction and momentum in a market with price limits," Pacific-Basin Finance Journal, Elsevier, vol. 48(C), pages 56-71.
    2. Wan, Yu-Lei & Wang, Gang-Jin & Jiang, Zhi-Qiang & Xie, Wen-Jie & Zhou, Wei-Xing, 2018. "The cooling-off effect of price limits in the Chinese stock markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 505(C), pages 153-163.
    3. Ho, Kung-Cheng & Lee, Shih-Cheng & Sun, Ping-Wen, 2022. "Disclosure quality, price efficiency, and expected returns," The North American Journal of Economics and Finance, Elsevier, vol. 59(C).
    4. Hsieh, Shu-Fan & Chan, Chia-Ying & Wang, Ming-Chun, 2020. "Retail investor attention and herding behavior," Journal of Empirical Finance, Elsevier, vol. 59(C), pages 109-132.
    5. Ahmad, Fawad & Oriani, Raffaele, 2022. "Investor attention, information acquisition, and value premium: A mispricing perspective," International Review of Financial Analysis, Elsevier, vol. 79(C).

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    More about this item

    Keywords

    Price limits; Value premium; Investor attention; Limits-to-arbitrage; information uncertainty;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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