Will the Deduction of Daily Price Limit Induce Volatility Decrease? Taiwan Evidence

10.6292/AFPF.2012.05.02

Shih-Yung Wei；Jack J. W. Yang；Wei-Chiang Hong

Asymmetric Volatility ； Trend and Transitory Component Volatility ； EGARCH ； CGARCH ； Price Limit

Advances in Financial Planning and Forecasting

5期（2012 / 12 / 01）

49 - 68

英文

The main purpose of this paper is to use the data of intraday to analyze asymmetric volatility and long-run and short-run effects. When financial turmoil, political issues, and such accidents occur, in order to maintain financial market stability, governments will carry out measures to establish market stability. The deduction of the price limit for the stock market is a good example. For instance, facing the global financial crisis in 2008, the governments in Taiwan and Pakistan announced deductions of price limits in their stock markets. The Taiwanese government deducted the price limit from 7% to 3.5%; however, is it appropriate for governments to interfere in markets? This paper studies the influence of the volatility asymmetries caused by the Taiwanese government's seven interventions near ten years. We collected intraday data to analyze, and used Exponential Generalized Autoregressive Conditional Hetroskedasticity (EGARCH) and Component Generalized Autoregressive Conditional Hetroskedasticity (CGARCH) models to do this research. The empirical results show that the interventions of the government did not decrease the volatility of the share price. Instead, this action caused even more asymmetric volatility, and increased the effect of the long-run and shot-run, reduced efficiency of the stock market.

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