This paper is to investigate whether capital-based growth rate Effect causes overreaction in Taiwan stock market. Following Laughran and Ritter (1996)model, our sample includes all stocks in the Exchange, whether active or not, to avoid the survivor bias,. Our results show that capital-based growth rate effect, firm size effect, low price effect and overreaction effect exist in Taiwan stock market. Moreover, applying the Fama-MacBeth analysis, we find that capital-based growth rate is the only factor that is able to explain overreaction in Taiwan stock market. Our results support the recent policy of Ministry of Finance to limit the listing companies' growth in their outstanding shares in order to reduce the volatility of the market.