Are magnet effects caused by uninformed traders? Evidence from Taiwan Stock Exchange

Woon Wong (), Matthew C. Chang and Anthony H. Tu

Pacific-Basin Finance Journal, 2009, vol. 17, issue 1, 28-40

Abstract: Using transactions and quotes data, we find significant magnet effects of price limit rules in Taiwan Stock Exchange (TSEC). Consistent with Subrahmanyam [Subrahmanyam, A., 1994. Circuit breakers and market volatility: a theoretical perspective. Journal of Finance 49, 237-254], we find that when limit hits are imminent, trading activities intensify with higher volume and volatility. More importantly, our transactions data allows us to examine the roles of institutions and individuals in the magnet effects in TSEC. There is strong evidence that magnet effects are caused by uninformed individuals, whereas if trade volumes are dominated by institutions, no significant magnet effect is found. The policy implication of our findings is that transparency and institutional participation can help to reduce the frequency of magnet effects.

Keywords: Price; limit; Magnet; effect; Transactions; data; Information; asymmetry; Taiwan; Stock; Exchange (search for similar items in EconPapers)
Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0927-538X(08)00018-8
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:17:y:2009:i:1:p:28-40

Access Statistics for this article

Pacific-Basin Finance Journal is currently edited by K. Chan and S. Ghon Rhee

More articles in Pacific-Basin Finance Journal from Elsevier
Bibliographic data for series maintained by Catherine Liu ().