Prospect theory and the effectiveness of price limits

NCUIR > School of Management at National Central University > Department of Finance > journal & Dissertation > Item 987654321/51715

Please use this identifier to cite or link to this item: http://ir.lib.ncu.edu.tw/handle/987654321/51715

Title:	Prospect theory and the effectiveness of price limits
Authors:	Lin,MC;Chou,PH
Contributors:	財務金融學系
Keywords:	LOSS AVERSION;FUTURES MARKETS;INVESTORS;DISPOSITION;BEHAVIOR;LOSSES;DECISIONS;TRADE;RISK
Date:	2011
Issue Date:	2012-03-27 19:03:27 (UTC+8)
Publisher:	國立中央大學
Abstract:	Assuming that traders are risk-neutral, Brennan (1986) shows that price limits are effective in improving the efficiency of futures contracts with limited accessibility to information because they obscure the exact loss when they are triggered. However, Brennan's (1986) model fails to explain why price limits also exist in contracts with abundant information like those of financial futures. We show that when traders are loss-averse, the effectiveness of price limits is strengthened even in the presence of precise information. Thus, our analysis provides a theoretical foundation explaining why price limits can be useful when market participants are not fully rational. (c) 2011 Elsevier B.V. All rights reserved.
Relation:	PACIFIC-BASIN FINANCE JOURNAL
Appears in Collections:	[Department of Finance] journal & Dissertation

Files in This Item:

File	Description	Size	Format
index.html		0Kb	HTML	615	View/Open

社群 sharing