New Evidence on Price Limit Performance from Options Market

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Title:	New Evidence on Price Limit Performance from Options Market
Authors:	Chung, Hui-Min
Contributors:	淡江大學財務金融學系
Keywords:	選擇權市場;漲跌幅;價格發現;市場績效;台灣;Option Market;Price Limit;Price Discovery;Market Performance;Taiwan
Date:	2001-06
Issue Date:	2014-02-11 23:59:47 (UTC+8)
Abstract:	Previous studies on the effectiveness of price limits suffer from theproblem of being unable to observe the true asset price in the absenceof price limit. This paper employs a new approach to investigate theeffectiveness of the price limit regulation rules by using data of theTaiwan derivatives warrants, which are more flexible to reflectunderlying asset's "true" value when the underlying asset price hitsthe limits. We examine whether options provide price discoveryfunction for the opening price of the next trading day after alimit-lock day. Our empirical results show that option market providesuseful price discovery information for the cases that underlying assetprices hit the upper limits. The results are especially significantfor warrants issued by high credit rating financial institutes. Pricelimit regulation rules help to stabilize the market during periods ofextreme downward market movements.
Relation:	2001年財務金融學術暨實務研討會論文集=Proceedings of the Annual Research Conference in Finance and Financial Market in the 21st Century
Appears in Collections:	[Graduate Institute & Department of Banking and Finance] Proceeding

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