Price Limits and Stock Characteristics: Evidence from Tehran Stock Exchange (TSE)

Document Type : Research Paper

Authors

1 Assistant Professor, Department of Economics, Faculty of Management and Economics, Sharif University of Technology

2 M.Sc. in Socio-Economic System Engineering, Sharif University of Technology

Abstract

Price limits are boundaries applied by market regulators to restrict daily upward and downward fluctuation of security prices within a pre-specified price range. In this study, we have used the data of trades of all companies listed in the Tehran Stock Exchange during 2006-2015 to study the characteristics of stocks that hit price limits frequently using a panel regression model with fixed effects and generalized method of moments (GMM). In fact, this study aims at investigating the price limits in Tehran Stock Exchange by a novel and distinct approach. In general, risky stocks exhibit more price volatility and thus are more likely to experience price-limit hits. In summary, the results reveal that, in Tehran Stock Exchange, the stocks of companies with higher residual risk, higher trading volume and book to market value, as well as smaller market capitalization with respect to other stocks hit price limits more frequently.
JEL Classification:G10, G14, G18

Keywords

Main Subjects

References

  1. اسکندری، رسول (1383). بررسی آثار حد نوسان قیمت سهام در بورس اوراق بهادار ایران. پایان‌نامه‌ی کارشناسی‌ارشد، دانشگاه شهید بهشتی، دانشکده‌ی مدیریت و حسابداری.
  2. جلالی، ثمین (1393). بررسی کارایی محدودیت نوسان قیمت در بورس اوراق بهادار تهران با استفاده از روش .Propensity Score Matching پایان‌نامه کارشناسی‌ارشد، دانشگاه صنعتی شریف، دانشکده‌ مدیریت و اقتصاد.
    1. Baker, H. K., & Kiymaz, H. (Eds.). (2013). Market microstructure in emerging and developed markets. John Wiley & Sons.
    2. Bamber, L. S. (1986). The information content of annual earnings releases: A trading volume approach. Journal of Accounting Research, 40-56.
    3. Bildik, R., & Elekdag, S. (2004). Effects of price limits on volatility: Evidence from the Istanbul stock exchange. Emerging markets finance and trade, 40(1), 5-34.
    4. Bildik, R., & Gülay, G. (2006). Are price limits effective? Evidence from the Istanbul Stock Exchange. Journal of Financial Research, 29(3), 383-403.
    5. Brady, N., Cotting, J., Kirby, R., Opel, J., Stein, H. (1988). Report of the Presidential task force on market mechanisms. Government Printing Office, Washington DC.
    6. Chan, K. C., & Chen, N. F. (1991). Structural and return characteristics of small and large firms. Journal of Finance, 1467-1484.
    7. Chan, L. K., Hamao, Y., & Lakonishok, J. (1991). Fundamentals and stock returns in Japan. The Journal of Finance, 46(5), 1739-1764. Chan, S. H., Kim, K. A., & Rhee, S. G. (2005). Price limit performance: evidence from transactions data and the limit order book. Journal of Empirical Finance, 12(2), 269-290.
    8. Chen, G. M., Kim, K. A., & Rui, O. M. (2005). A note on price limit performance: The case of illiquid stocks. Pacific-Basin Finance Journal, 13(1), 81-92.
    9. Daniel, K., & Titman, S. (1997). Evidence on the characteristics of cross sectional variation in stock returns. The Journal of Finance, 52(1), 1-33.
    10. Fama, E. F., & French, K. R. (1992). The cross‐section of expected stock returns. The Journal of Finance, 47(2), 427-465.
    11. Karpoff, J. M. (1986). A theory of trading volume. The Journal of Finance, 41(5), 1069-1087.
    12. Kim, K. A., & Limpaphayom, P. (2000). Characteristics of stocks that frequently hit price limits: Empirical evidence from Taiwan and Thailand. Journal of Financial Markets, 3(3), 315-332.
    13. Kim, K. A., & Rhee, S. (1997). Price limit performance: evidence from the Tokyo Stock Exchange. The Journal of Finance, 52(2), 885-901.
    14. Moser, J. T. (1990). Circuit breakers. Economic Perspectives, (Sep), 2-13.
    15. Telser, L. G. (1981). Margins and futures contracts. Journal of futures markets, 1(2), 225-253.
    16. Verrecchia, R. E. (1981). On the relationship between volume reaction and consensus of investors: Implications for interpreting tests of information content. Journal of Accounting Research, 271-283.
    17. Yang, J. (2003). A Market Stabilization Mechanism - Circuit Breaker: Theory and Evidence. (Electronic Thesis or Dissertation). Retrieved from https://etd.ohiolink.edu/

Files

History

  • Receive Date: 01 March 2017
  • Revise Date: 06 October 2017
  • Accept Date: 26 December 2017

Share

How to cite

Statistics