| dc.description.abstract | How to strike an optimal balance between the return-risk trade-off has been the most important financial decision among investors. While investors are assumed to be rational in the classical Finance/Economics setup, some recent evidence has documented different psychological biases arisen from their investment decisions. The widely recognized behavioral pricing anomalies due to over confidence, over reaction, … etc. in financial markets have left the room for several listed companies to undertake certain speculative manipulations, famous ones are such as the previous Enron or World Dot Com. How to protect the innocent individual that are with limited information has became an important corporate governance issue that has prompted calls for greater transparency and disclosure on companies around the globe. The Market Observation Pose System (MOPS) from the Taiwan Stock Exchange Corporation is a platform built to enhance the information disclosure and transparency doe equity trading in the local market as a way for outside monitoring from market forces to prevent from the abnormal/illegal manipulations from companies, in particular those who is experiencing financial distress.
This study uses the recently developed econometric recipe for detecting price bubbles for identification of speculative manipulation of stock price for a specific firm. Using four different groups of listed/delisted companies, the test, thanks to its nice statistical properties, is shown to be easy to implement and informative in finding firms that are speculatively manipulated or with growth potentials in the future. In order to enable investors to better protect their interest, promote corporate transparency, assist companies in reducing cost of capital, and help regulators better monitor the market, we believe this new method and the disclosed empirical findings can be widely applied as a part of the early-warning system in the MOPS by TSE.
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