Limit hits and informationally-related stocks

Jia-Hau Guo, Lung Fu Chang, Mao Wei Hung*

*Corresponding author for this work

Research output: Contribution to journalArticle

4 Scopus citations

Abstract

We propose a method of propensity score matching to study limit hits on connected TWSE-listed stocks across industries between 1/1/2004 and 12/31/2013. The findings show significant liquidity and price impacts on connected stocks. We demonstrate that informed traders may trade connected stocks as a substitution for the hitting stock, and connected stocks seem to provide alternatives for uninformed traders to reverse their suboptimal trades even prior to the hit. In addition, our results indicate that liquidity impacts of limit hits with less information asymmetry are weaker and there is a common liquidity response of connected stocks to firm-specific limit hits.

Original languageEnglish
Pages (from-to)31-47
Number of pages17
JournalJournal of Financial Markets
Volume34
DOIs
StatePublished - 1 Jun 2017

Keywords

  • Liquidity impact
  • Order imbalance reversal
  • Price impact
  • Price limit
  • Propensity score match

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