Empirical Analysis of Price Limit Hits of Tokyo Stock Exchange

Abstract

The primary aim of this paper is to examine characteristics of stocks that hit the limits listed in the Tokyo Stock Exchange. We analyse the characteristics of stocks that hit the limits more frequently, the characteristics of stocks that hit the upper limits and the characteristics of stocks that hit the lower limits. The results show that stocks that hit the upper limits tend to have smaller systematic risk and a stock that hit the lower limit tend to have high systematic risk. This indicates that lower limit hits are mostly due to market driven downward movements while upper limit hits are more likely related to company driven upward movements. This means that price limits rules were effective in Japan in curbing undesired fluctuations of stock prices and in protecting the market from crashes.