The magnet effect of price limits: A logit approach

Hsieh, Ping-Hung; Kim, Yong H.; Yang, Jie

doi:10.1016/j.jempfin.2009.06.002

Cited by 53 publications

(34 citation statements)

References 33 publications

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“…The original observations of 300 firms were matched with firm-level data from the Taiwan Economic Journal, which annually compiles a list of firms' financial reports. These lists are well received in the professional economic and financial communities and various indexes of these surveys have been used to support numerous research projects (Chen and Huang, 2006;Chu et al, 2006;Hsieh, Kim and Yang, 2009;Ke, Chiang and Liao, 2007;Liu, Tseng and Yen, 2009;Peng and Fang, 2010). However, many firms did not report the type of information we require in this study, and those with firm-level information missing from the database were eliminated from the sample.…”

Section: Data and Samplementioning

confidence: 99%

Clarifying the Effect of Intellectual Capital on Performance: The Mediating Role of Dynamic Capability

Hsu

Wang

2010

British J of Management

389

341

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Recent studies suggest a potential relationship between intellectual capital and dynamic capability in achieving performance. This is unsettling for managers because these studies contain little effort to develop a framework for understanding the relationship. To examine this unnerving potential, we develop and test a theoretical model that explains how dynamic capability mediates the impact of intellectual capital on performance. In this study, the scope of intellectual capital includes human capital, relational capital and structural capital. This study examines the pooled data of 242 high-technology firms from 2001 to 2008. Results from Bayesian regression analysis suggest that the effect of structural capital on performance is completely mediated by dynamic capability. Furthermore, the findings show that dynamic capability does not completely mediate the respective effects of human capital and relational capital on performance, but does so only partially. These results provide convincing support for the importance of dynamic capability through accumulating R&D and marketing capability over time, thereby enhancing firm performance. The empirical findings and the ensuing discussion will be of interest to managers and practitioners.

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Section: Data and Samplementioning

confidence: 99%

Clarifying the Effect of Intellectual Capital on Performance: The Mediating Role of Dynamic Capability

Hsu

Wang

2010

British J of Management

389

341

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“…A weak form of magnet effect was documented by Sifat and Mohamad () for the same exchange. Using a logit model, Hsieh, Kim, and Yang () find evidence of the magnet effect of price limits, with important regulatory implications. They find that the price volatility drops significantly following consecutive limit hits, supporting the volatility hypothesis.…”

Section: Empirical Workmentioning

confidence: 99%

Circuit breakers as market stability levers: A survey of research, praxis, and challenges

Sifat

Mohamad

2018

Int. J Fin Econ

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Circuit breaker, an automated regulatory instrument employed to deter panic, temper volatility, and prevent crashes, is controversial in financial markets. Proponents claim it provides a propitious time out when price levels are stressed and persuades traders to make rational trading decisions. Opponents demur its potency, dubbing it a barrier to laissez‐faire price discovery process. Since conceptualization in 1970s and practice from 1980s, researchers focused mostly on its ability to allay panic, interference in trading, volatility transmission, prospect of self‐fulfilling prophecy through gravitational pull towards itself, and delayed dissemination of information. Though financial economists are forked on circuit breakers' usefulness, they are a clear favourite among regulators, who downplay the reliability of anti‐circuit breaker findings citing, inter alia, suspect methodology, and lack of statistical power. In the backdrop of 2007–2008 Crisis and 2010 Flash Crash, the drumbeats for more regulatory intervention in markets grew louder. Hence, it is unlikely that intervening mechanism such as circuit breakers will ebb. But are circuit breakers worth it? This paper synthesizes three decades of theoretical and empirical works, underlines the limitations, issues, and methodological shortcomings undermining findings, attempts to explain regulatory rationale, and provides direction for future research in an increasingly complex market climate.

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“…Explanatory variables of the logit model defined here are mainly referred in [13] and [14], specific definitions of explanatory variables are shown as follows. The first variable is the pre-event trading direction IBS k−l , which is the direction of the l-th trade lagging behind the k-th trade.…”

Section: Definition Of Explanatory Variablesmentioning

confidence: 99%

The cooling-off effect of price limits in the Chinese stock markets

Wan

Wang

Jiang

et al. 2018

Physica A: Statistical Mechanics and its Applications

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The price limit trading rule is one of the most widely adopted measures on restricting stock price volatilities in some stock markets. It is expected to stabilize the stock markets and enhance the efficiency of the market allocations. The existence of the cooling-off effect or the magnet effect, induced by the price limit trading rule, is the main controversy of this policy. In this paper, we investigate the cooling-off effect (opposite to the magnet effect) from two aspects. Firstly, from the viewpoint of dynamics, we study the existence of the cooling-off effect by following the dynamical evolution of some financial variables over a period of time before the stock price hits its limit. Secondly, from the probability perspective, we investigate, with the logit model, the existence of the cooling-off effect through analyzing the high-frequency data of all A-share common stocks traded on the Shanghai Stock Exchange and the Shenzhen Stock Exchange from 2000 to 2011 and inspecting the trading period from the opening phase prior to the moment that the stock price hits its limits. A comparison is made of the properties between up-limit hits and down-limit hits, and the possible difference will also be compared between bullish and bearish market state by dividing the whole period into three alternating bullish periods and three bearish periods. We find that the cooling-off effect emerges for both up-limit hits and down-limit hits, and the cooling-off effect of the down-limit hits is stronger than that of the up-limit hits. The difference of the cooling-off effect between bullish period and bearish period is quite modest. Moreover, we examine the sub-optimal orders effect, and infer that the professional individual investors and institutional investors play a positive role in the cooling-off effects. All these findings indicate that the price limit trading rule exerts a positive effect on maintaining the stability of the Chinese stock markets.

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The magnet effect of price limits: A logit approach

Cited by 53 publications

References 33 publications

Clarifying the Effect of Intellectual Capital on Performance: The Mediating Role of Dynamic Capability

Clarifying the Effect of Intellectual Capital on Performance: The Mediating Role of Dynamic Capability

Circuit breakers as market stability levers: A survey of research, praxis, and challenges

The cooling-off effect of price limits in the Chinese stock markets

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