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The impact of trading mechanism reforms on behavioral biases: Evidence from Taiwan stock market

Author

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  • Hung, Jui-Cheng
  • Chiu, Chien-Liang
  • Huang, Chien-Ming
  • Liao, Chun-Pin

Abstract

This paper analyzes the impact of the Taiwan Stock Exchange's shift to a continuous trading mechanism in March 2020 on two significant retail investor biases: the disposition effect and overconfidence. We use daily margin trading data from 768 listed companies to make stock-level behavioral measures that show how things changed after the reform. The findings indicate that both biases experienced a substantial increase subsequent to the implementation of continuous trading. Difference-in-differences analyses further show that this behavioral amplification is stronger in stocks that were traded more heavily by retail investors before the reform. Robustness checks employing alternative, return-based bias metrics validate a consistent market-wide impact of continuous trading. In general, the results show that changes to trading mechanisms can unintentionally make behavioral biases worse in markets where retail investors are in charge. This has important effects on how markets are designed and regulated.

Suggested Citation

  • Hung, Jui-Cheng & Chiu, Chien-Liang & Huang, Chien-Ming & Liao, Chun-Pin, 2026. "The impact of trading mechanism reforms on behavioral biases: Evidence from Taiwan stock market," Research in International Business and Finance, Elsevier, vol. 89(C).
    • Handle: RePEc:eee:riibaf:v:89:y:2026:i:c:s0275531926002011
    DOI: 10.1016/j.ribaf.2026.103474
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    References listed on IDEAS

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    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G40 - Financial Economics - - Behavioral Finance - - - General

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