An Analysis of the Magnet Effect under Price Limits

28 Pages Posted: 8 Jun 2009

See all articles by Daphne Yan Du

Daphne Yan Du

affiliation not provided to SSRN

Qianqiu Liu

University of Hawaii at Manoa - Shidler College of Business

S. Ghon Rhee

University of Hawaii - Shidler College of Business; University of Hawaii - Department of Financial Economics and Institutions

Abstract

Using the Korea Stock Exchange's transaction data and limit order book, we document the accelerating patterns of market activity before limit hits. We confirm the existence of the magnet effect from several key market microstructure variables, using a parsimonious quadratic function of the time until the price limit hit. In addition, this paper is the first to isolate the intraday momentum effect from the magnet effect during the period before stock prices hit daily price limits.

Suggested Citation

Yan Du, Daphne and Liu, Qianqiu and Rhee, S. Ghon, An Analysis of the Magnet Effect under Price Limits. International Review of Finance, Vol. 9, Issue 1-2, pp. 83-110, March/June 2009. Available at SSRN: https://ssrn.com/abstract=1414485 or http://dx.doi.org/10.1111/j.1468-2443.2009.01086.x

Daphne Yan Du (Contact Author)

affiliation not provided to SSRN

No Address Available

Qianqiu Liu

University of Hawaii at Manoa - Shidler College of Business ( email )

2404 Maile Way, E602f
Honolulu, HI 96822
United States
808-956-8736 (Phone)
808-956-9887 (Fax)

S. Ghon Rhee

University of Hawaii - Shidler College of Business ( email )

2404 Maile Way
C-304, FEI/CBA
Honolulu, HI 96822
United States

University of Hawaii - Department of Financial Economics and Institutions ( email )

United States

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