Effect of Price Limits: Initial Public Offerings Versus Seasoned Equities

24 Pages Posted: 13 Oct 2009

See all articles by Yong H. Kim

Yong H. Kim

University of Cincinnati

J. Jimmy Yang

Oregon State University - College of Business

Abstract

In this paper, we examine the effect of price limits on initial public offerings (IPOs) using Taiwanese data. On average, it takes 6.24 days for IPOs to reach their equilibrium prices in the presence of a 7% price limit. We compare IPOs with their industry- and size-matched seasoned equities (MSEs) and observe higher volatility levels on subsequent days for IPOs than for MSEs. However, the higher volatility decays within 2 days. Lower price limits interfere with trading and lead to higher trading activity on subsequent days for IPOs than for MSEs. We also observe delayed price discovery for both IPOs and MSEs. Overall, our results provide evidence about the effect of price limits on IPOs and generate important regulatory implications for countries imposing price limits on IPOs.

Suggested Citation

Kim, Yong H. and Yang, J. Jimmy, Effect of Price Limits: Initial Public Offerings Versus Seasoned Equities. International Review of Finance, Vol. 9, Issue 3, pp. 295-318, September 2009, Available at SSRN: https://ssrn.com/abstract=1486356 or http://dx.doi.org/10.1111/j.1468-2443.2009.01092.x

Yong H. Kim (Contact Author)

University of Cincinnati ( email )

Lindner College of Business
410 Carl H. Lindner Hall, P.O. Box 210195
Cincinnati, OH 45221
United States
513-556-7084 (Phone)
513-556-0979 (Fax)

J. Jimmy Yang

Oregon State University - College of Business ( email )

School of Accounting, Finance, and Information Sys
426 Austin Hall
Corvallis, OR 97331
United States
541-737-6005 (Phone)
541-737-4890 (Fax)

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