TitleThe magnet effect of price limits: a logit approach
Publication TypeJournal Articles
Year of Publication2009
AuthorsHsieh, P-H, Kim, YH, Yang, J
JournalJournal of Empirical Finance
Volume16
Issue5
Pagination830-837
Date Published2009
KeywordsDoctoral Program, Finance, MBA, Supply Chain
Abstract

We investigate the magnet effect of price limits using transaction data from the Taiwan Stock Exchange. A logit model incorporates explanatory variables from microstructure literature and reveals that the conditional probability of a price increase (decrease) increases significantly when the price approaches the upper (lower) price limit, in support of the magnet effect. Our approach recognizes when the magnet effect starts to emerge and identifies possible determinants of magnet effect. The probability of information-based trading has a significant impact on the magnet effect for lower price limits.

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