Widened Price-Limits and Efficiency of Price Discovery over the Course of a Trading Day

2016 ◽  
Vol 24 (2) ◽  
pp. 245-267
Author(s):  
Junghoon Seon
Keyword(s):  
Price Discovery ◽  
Share Price ◽  
Discovery Process ◽  
Price Limits ◽  
Price Efficiency ◽  
Full Sample ◽  
Whole Process ◽  
Information Hypothesis ◽  
Before And After ◽  
Price Discovery Process

Korea Exchange has widen daily price limits from ±15% to ±30% of previous trading day’s closing price since June 15, 2015. In this paper, we examine how the event of widening price limits affect price discovery process over the course of trading day. In order to conduct this investigation, we compare price efficiency during such price discovery before and after the event. The changes that has occurred after the event can be summarized as follows: First, an analysis on full-sample indicates that price efficiency is maintained over the course of a trading, while it is aggravated temporary in two early intervals. Second, an analysis on sub-samples sorted by market capitalization, shares outstanding, or share price indicates that temporary aggravation of price efficiency in some mid-intervals is observed for shares outstanding lower group and share price top group. Overall, our results suggest that evidence supporting information hypothesis is found for the whole process of price discovery over the course of a trading day, though evidence supporting over-reaction hypothesis is found in some intervals or some types of stocks.

scholarly journals The Effectiveness of Price Bands on Emerging Markets: Evidence from India

2018 ◽  
Vol 7 (4) ◽  
pp. 195
Author(s):  
Chakrapani Chaturvedula ◽  
Nikhil Rastogi
Keyword(s):  
Emerging Markets ◽  
Capital Markets ◽  
Stock Prices ◽  
Price Discovery ◽  
Volatility Spillover ◽  
Discovery Process ◽  
Price Limits ◽  
The Impact ◽  
Price Discovery Process ◽  
Spillover Hypothesis

We study the impact of price bands in the Indian capital markets and following the methodology of Kim and Rhee (1997) we do not find evidence in support of the volatility spillover hypothesis. Our evidence suggests that price limits does not hinder the price discovery process and may play an important role in reducing the volatility of stock prices in the emerging markets like India.

scholarly journals The Price Discovery Mechanism between Sovereign Bond and Sovereign CDS Market: Studies in Selected Countries

2017 ◽  
Vol 9 (2) ◽  
pp. 270 ◽  
Author(s):  
Ngan Bich Nguyen
Keyword(s):  
Price Discovery ◽  
Empirical Test ◽  
Bond Market ◽  
Discovery Process ◽  
Sovereign Bond ◽  
Leading Role ◽  
Long Run ◽  
Pricing Process ◽  
Short Run ◽  
Price Discovery Process

This paper employs the multivariate VAR model to examine the mechanic work of price discovery process between sovereign CDS market and the associated sovereign bond market in contexts of five European and Asian countries, including Vietnam, Korea, Portugal, Italy and France from the beginning of 2008 to the end of April, 2017. The study accentuates on three aspects: the short-term interaction nexus between the sovereign CDS and the associated-sovereign bond market, the long-term co-movement between them and the discovery of which market plays the leading role in the pricing process. The results evidence the short-run and long-run relationship for the two markets. Particularly, the empirical test results support for the predominant role of the sovereign CDS market in the price discovery process in the bulk of sample entities. This might suggests for the governments to use CDS prices as the future indicator for predicting the volatility of debt markets.

The Incremental Value Relevance of Media Coverage of Earnings Announcements: Evidence from the Trading of Short Sellers

2021 ◽  
Author(s):  
Lynn Rees ◽  
Brady Twedt
Keyword(s):  
Media Coverage ◽  
Price Discovery ◽  
Value Relevance ◽  
Earnings Announcements ◽  
Discovery Process ◽  
Trading Behavior ◽  
Earnings Announcement ◽  
Short Sellers ◽  
The Media ◽  
Price Discovery Process

We investigate the relation between media coverage and the trading behavior of short sellers around earnings announcements. Prior research provides conflicting evidence on the role of the media, with some studies finding that the media can impede the price discovery process. Our evidence indicates that short sellers increase their activity in line with the tone of media coverage around earnings announcements, after controlling for earnings news and other factors that affect relative levels of short selling. Furthermore, we show that information in the media successfully forecasts earnings information in the days leading up to the earnings announcement, and that short sellers trade in a manner consistent with information reflected in media coverage preceding the earnings announcement. Our findings are consistent with information contained in the media having value relevance, and suggest that the media may help to facilitate the price discovery process around the release of earnings.

Spreading the Word: Price Discovery and Newswire Dissemination of Management Earnings Guidance

2015 ◽  
Vol 91 (1) ◽  
pp. 317-346 ◽  
Author(s):  
Brady Twedt
Keyword(s):  
Price Discovery ◽  
Matched Control ◽  
Substantial Effect ◽  
Bad News ◽  
Discovery Process ◽  
Earnings Guidance ◽  
Management Earnings Guidance ◽  
The Impact ◽  
Guidance Information ◽  
Price Discovery Process

ABSTRACT This study investigates the impact of dissemination on the efficiency of the price discovery process with respect to management earnings guidance disclosures. I first identify firm and guidance characteristics associated with the likelihood that guidance receives coverage in the Dow Jones Newswires. Using propensity score, within-firm, and returns-based matched control samples of guidance, I find that newswire dissemination is associated with larger initial price reactions and, more importantly, an increase in the speed with which guidance information is incorporated into price. I also find that newswire coverage affects the market's reaction to stand-alone versus bundled guidance and good versus bad news guidance. This study is the first to provide evidence of systematic variation, both across and within firms, in the breadth of guidance dissemination, and it shows that this variation has a substantial effect on how investors respond to guidance. JEL Classifications: G14; M41; L82.

Does CDS Premium Most Predict Sovereign Default Risk?

2014 ◽  
Vol 22 (3) ◽  
pp. 495-530
Author(s):  
Ki Beom Binh ◽  
Seokjin Woo ◽  
Sang Min Lee
Keyword(s):  
Financial Crisis ◽  
Default Risk ◽  
Price Discovery ◽  
Sovereign Default ◽  
Spot Rate ◽  
Discovery Process ◽  
Dollar Spot ◽  
Sovereign Default Risk ◽  
Sovereign Credit Risk ◽  
Price Discovery Process

This paper empirically analyzes the price discovery process between Korean sovereign CDS premium, spread of Korean government debt, Won-Dollar currency swap rate, and Won-Dollar FX rate. With the global financial and fiscal crisis, especially in the U.S. and Euro-zone, the interests in sovereign default risk have risen. Interests in CDS, an OTC credit derivative contract based on debt issuer’s default risk, also have increased. A large number of presses have reported that CDS premium would be the best international market indicator for the default risk taken or transferred. However, internationally the CDS market liquidity has not been sufficient enough to validate its properties. Hence, based on empirics, this paper discusses whether Korean sovereign CDS premium can be considered as an appropriate indicator of sovereign credit risk in the Korean economy. Other largely accepted indices which contain the similar information about Korean economic fundamental and Korean external sovereign credit risk are also analyzed and compared: the spread of Korean government debt, Won-Dollar Currency Swap Rate, and Won-Dollar FX rate. Our findings include: (a) in the price discovery process, Won-Dollar spot rate contributes to the price discovery especially most ‘during the financial crisis period’ and the ‘entire period’ (b) Within the period ‘after the financial crisis’, CDS premium and the other indices have mutual influences on the price discovery process higher than the period ‘before the financial crisis’ (c) while Won-Dollar forward rate shows the similar result with Won-Dollar spot rate, NDF rate and CDS premium make the largest mutual influence on price discovery in the period ‘before the financial crisis.’

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