Published: 9 June 2020| Version 1 | DOI: 10.17632/b6zmcvp326.1
Zi-May Wang


Using a modified MAX measure, limit-hitting rate (LHR), this paper finds that the Taiwanese stock market has a significant modified MAX effect of “higher LHR and lower subsequent returns” and discusses the impact of monthly revenue announcements peculiar to the Taiwanese stock market on the modified MAX effect. When the LHR is mainly driven by revenue announcements, the negative relationship between LHR and future returns becomes insignificant and the chance of another high LHR in the following month is lowered. This study supports that individual investors’ trading behaviors are related to gambling anomalies, since the significant modified MAX effect only exists among stocks with high individual order proportion. When an extremely high LHR is associated with revenue information, this type of stock is significantly less appealing to individual investors, whose order imbalances will drop substantively. Thus, there will be no overpricing, leading to relatively low future returns. This paper adopts Taiwan-listed and OTC firms as a research sample. The sample period is from January 1996 to December 2018, during which a price limit of 7% was in place most of the time, and a 10% price limit was imposed on June 1, 2015. After excluding the stocks with less than 10 trading days in a month and those that do not have stock characteristics, the final sample consists of 260,665 month-stock observations. We utilize the Taiwan Economic Journal (TEJ), which is a local data vendor in Taiwan, and obtain the following data: (1) regular trading data of stocks, such as market capitalization, return, turnover, number of outstanding shares, price to book equity ratio, risk-free interest rate, and various risk factors; (2) the monthly revenue announcements dates of listed and OTC companies in Taiwan; and (3) the business cycle indicator and consumer confidence index. This paper obtains the order-level data of listed companies via the TWSE, including the time stamp (to the nearest 100th of a second), stock code, buy–sell indicator, order size, limit price, and investor type.