Journal of Economics and Management  
  Volume 14, No. 2  
  August, 2018  

Order Aggressiveness and the Heating and Cooling-off Effects of Price Limits: Evidence from Taiwan Stock Exchange


Ming-Chang Wang


Department of Business Administration, National Chung Cheng University, Taiwan

  Yu-Jia Ding  
Department of Logistics Management, National Defense University, Taiwan
  Pei-Han Hsin  
  Department of International Business, Cheng Shiu University, Taiwan  



This study investigates the relationship between order aggressiveness and the distance between stock market prices and price limits in order to shed some light on the ‘heating’ and ‘cooling-off’ effects of these limits. Using intraday data on the Taiwan Stock Exchange (TSE), in conjunction with piecewise ordered probit regressions, we find that a significant ‘inverted-N’ (‘N’) shape pattern is discernible on the sell (buy) side of the relationship between order aggressiveness and price distance, which is consistent with the heating effect of upper (lower) price limits, as well as a cooling-off effect of lower (upper) price limits for market sellers (buyers). This study is the first to analyze changes of market participants’ order aggressiveness when approaching price limits. Our findings offer clear indications to policymakers that price limits could counteract irrational stock markets.



Keywords:  market microstructure, heating effect, cooling-off effect, price limits, order aggressiveness



JEL classification:  D47, G13, G14