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The Policy Effects of Lifting the Short-Sale Price Restriction on Stock Price Behaviors

Author

Listed:
  • Shih-Ju Chan

    (Department of International Business, Kao Yuan University, Taiwan)

  • Ching-Chung Lin

    (Department of Business Administration, Kao Yuan University, Taiwan)

  • Wen-Hsiu Kuo

    (Department of Finance, Tainan University of Technology, Taiwan)

Abstract

The restriction of short-sale prices, which stated that short-sale prices must not be lower than the closing price of the previous trading day, no longer applies to the constituent stocks of the Taiwan Top 50 Index. This study investigates the abnormal returns and volatility changes of those component stocks. The empirical results show that, after the removal of this price restriction, no significant cumulative abnormal return has been found, while the volatilities of those component stocks have increased significantly. Moreover, stocks with a lower percentage of margin transactions experience higher volatility. To reduce the possible impact on volatility, the authorities may take the activity of margin transactions into account when considering whether to apply this policy to more stocks in the future. Thus, reducing investors' risks and increasing information flow can be achieved simultaneously.

Suggested Citation

  • Shih-Ju Chan & Ching-Chung Lin & Wen-Hsiu Kuo, 2008. "The Policy Effects of Lifting the Short-Sale Price Restriction on Stock Price Behaviors," Journal of Economics and Management, College of Business, Feng Chia University, Taiwan, vol. 4(2), pages 203-228, July.
    • Handle: RePEc:jec:journl:v:4:y:2008:i:2:p:203-228
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    Citations

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    Cited by:

    1. Ming-Chang Wang & Yu-Jia Ding & Pei-Han Hsin, 2018. "Order Aggressiveness and the Heating and Cooling-off Effects of Price Limits: Evidence from Taiwan Stock Exchange," Journal of Economics and Management, College of Business, Feng Chia University, Taiwan, vol. 14(2), pages 191-216, August.

    More about this item

    Keywords

    abnormal return; short sales; Taiwan 50 Index; volatility;
    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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