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Price limit changes and market quality in the Taiwan Stock Exchange

Author

Listed:
  • Lien, Donald
  • Hung, Pi-Hsia
  • Zhu, Jia-De
  • Chen, Yi-Hsuan

Abstract

This study examines the relationships between price limit changes and market quality in the Taiwan Stock Exchange taking into account limit hits, order choices, and firm characteristics. Specifically, we investigate whether price limit changes affect firm-level market quality and firm-trader-level order execution quality. Our analysis yields several findings as follows. After the price limit changes, stock traders alter their order choices significantly by increasing order aggressiveness and decreasing trade size, with the firm-level market quality changing as well. In particular, both time-weighted spread and intraday volatility increase significantly, market depth decreases, and order execution quality (i.e., order duration and fill rate) is enhanced. In terms of trader types, professional investors have better order execution quality than other institutions and individuals.

Suggested Citation

  • Lien, Donald & Hung, Pi-Hsia & Zhu, Jia-De & Chen, Yi-Hsuan, 2019. "Price limit changes and market quality in the Taiwan Stock Exchange," Pacific-Basin Finance Journal, Elsevier, vol. 55(C), pages 239-258.
    • Handle: RePEc:eee:pacfin:v:55:y:2019:i:c:p:239-258
    DOI: 10.1016/j.pacfin.2019.04.006
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    Citations

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    Cited by:

    1. Wan, Xiaoyuan & Zhang, Jiachen, 2022. "The effect of relaxing daily price limit: Evidence from the ChiNext market of China," Economics Letters, Elsevier, vol. 215(C).
    2. Lin, Mei-Chen & Lin, Yu-Ling, 2021. "Idiosyncratic skewness and cross-section of stock returns: Evidence from Taiwan," International Review of Financial Analysis, Elsevier, vol. 77(C).
    3. Hao Li & Zhisheng Li, 2022. "The effect of daily price limits on stock liquidity: Evidence from the Chinese stock market," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(5), pages 4885-4917, December.
    4. Zhuwei Li & Xuejiao Lu & Yuan Fu, 2022. "Interaction influence of trading rules on the quality of stock markets: the price limit rule and day trading rule from the Shanghai and Shenzhen Stock exchanges," Applied Economics, Taylor & Francis Journals, vol. 54(56), pages 6467-6479, December.
    5. Yang, Ann Shawing, 2020. "Misinformation corrections of corporate news: Corporate clarification announcements," Pacific-Basin Finance Journal, Elsevier, vol. 61(C).
    6. Bing, Tao & Cui, Yian & Min, Ying & Xiong, Xiong, 2022. "Price limit changes and market quality: Evidence from China," Finance Research Letters, Elsevier, vol. 48(C).
    7. Lien, Donald & Hung, Pi-Hsia & Lo, Hsiang-Yu, 2022. "Order Choices: An Intraday Analysis of the Taiwan Stock Exchange," The North American Journal of Economics and Finance, Elsevier, vol. 62(C).
    8. Zhang, Xiaotao & Wang, Ziqiao & Hao, Jing & He, Feng, 2022. "Price limit and stock market quality: Evidence from a quasi-natural experiment in the Chinese stock market," Pacific-Basin Finance Journal, Elsevier, vol. 74(C).
    9. Donald Lien & Pi-Hsia Hung & Chiu-Ting Pan, 2020. "Price limit changes, order decisions, and stock price movements: an empirical analysis of the Taiwan Stock Exchange," Review of Quantitative Finance and Accounting, Springer, vol. 55(1), pages 239-268, July.

    More about this item

    Keywords

    Information content; Market microstructure; Order decisions; Order execution quality; Trading strategy;
    All these keywords.

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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