Two Essays on Price Limits and One Essay on Health Insurance

The first two essays study the special quote (SQ) and limit up-limit down (LULD) rules. These rules are short duration price limits rules on the Tokyo Stock Exchange (SQ) and US stock exchanges (LULD). We present a novel research design where we create pseudo-event samples to test stock market behavior in the absence of these rules. The first essay examines price limit effects on delayed price discovery and the magnet effect. We find that neither SQ nor LULD delay price discovery. SQ exhibits evidence of the magnet effect at the upper price limit while LULD has no magnet effect. The second essay focuses on volatility spillover following a price limit event and microstructure noise during flash crashes. Consistent with previous findings regarding daily static price limits, we find little evidence that either SQ or LULD calm market volatility. Also, we find little evidence that LULD reduces intraday volatility during periods of extreme volatility such as flash crashes. The third essay strives to develop a more efficient, lower-cost health insurance/underwriting system. We divide healthcare coverage into three tiers. Tier 1 consists of low severity healthcare claims that occur regularly for essentially all people. Tier 2 covers relatively lower frequency and higher cost healthcare claims that present lower, more predictable underwriting risk and rarely involves prolonged, year to year, underwriting risks. Tier 3 involves catastrophic low frequency but high severity healthcare underwriting risks that may require larger volume insurers to achieve diversification through a more stable distribution of benefits. Tier 3 claims often result in the long term and expensive future healthcare needs risks often terminating with the death of the insured. We show empirically that annual health care expense is a function of claim frequency and claim severity. Further, we show that claim frequency and claim severity are interrelated and that their covariant relation is non-homogeneous across the entire distribution of health care claims. Finally, we show that by segmenting health care insurance underwriting based on these three tiers, cumulative health insurance premiums are reduced. We propose policy recommendations to address social interests including affordable care and universal coverage