Taiwan Stock Market: Day-Trading Alerts & Investor Behavior | International Review of Economics & Finance
Taiwan Stock Exchange’s Day-Trading Alert System Triggers Price Pressure, Study Finds
TAIPEI – A new study examining the impact of the Taiwan Stock Exchange’s (TWSE) day-trading alert system reveals that stocks flagged under the system experience significant negative abnormal returns, particularly those with high retail investor participation. The research, conducted by Ai-Chi Hsu, Shu-Bing Liu, and Chu-Wen Chuang, and slated for publication in the International Review of Economics & Finance in 2026, assesses whether the alerts serve as useful information for investors or effectively curb speculative trading.
Implemented on August 27, 2021, the day-trading alert system was designed to flag stocks exhibiting unusual trading activity. The study’s findings indicate that the announcement of these alerts generates short-term price pressure, with the negative returns persisting for several days after the initial alert. This suggests the system functions as a market signal, prompting investors to reassess their holdings.
The researchers found the effect of the alerts was amplified for large-cap stocks and those with high margin-buying ratios. Margin buying, where investors borrow funds to purchase securities, is often associated with increased retail investor involvement and higher levels of speculation. The study suggests that the alert system is particularly effective in influencing stocks heavily traded by individual investors.
The research team’s analysis focused on abnormal returns and cumulative abnormal returns, metrics used to measure the difference between actual returns and expected returns based on market conditions. The significant negative abnormal returns observed following the alert announcements indicate that the market reacts negatively to the signal, potentially due to concerns about underlying risks or speculative bubbles.
The study’s authors note that the alert system’s effectiveness in curbing excessive speculative activity remains an area for further investigation. While the alerts appear to generate price pressure, it is unclear whether this pressure is sufficient to deter risky trading behavior in the long term. The research provides a detailed empirical analysis of the system’s initial impact, offering valuable insights for policymakers and investors alike.
The findings are expected to contribute to ongoing discussions about the role of regulatory interventions in managing market volatility and protecting retail investors. Further research will be needed to assess the long-term effects of the alert system and its potential impact on market efficiency.