Price-limit effectiveness: evidence from the Borsa Istanbul (BIST)
International Journal of Islamic and Middle Eastern Finance and Management
ISSN: 1753-8394
Article publication date: 5 November 2021
Issue publication date: 6 May 2022
Abstract
Purpose
This paper aims to analyze the impact of price-limit hits by hit type and when such hits start and stop using intraday trades and quotes at a one-second frequency for firms included in the BIST-50 index during the 13-months starting with March 2008. Like the recent COVID-19 period, this period includes the heightened stress in global financial markets in September 2008.
Design/methodology/approach
Using intra-day trades and quotes at a one-second frequency, the authors examine the market effects of price limits for firms included in the BIST-50 index during the global financial crisis. The authors compare the values of various metrics for 60 min centered on price-limit hit periods. The authors conduct robustness tests using auto regressive integrated moving average (ARIMA) models with trade-by-trade and with 3-min returns.
Findings
The findings are supportive of the following hypotheses: magnet price effects, greater informational asymmetric effects of market quality and each version of price discovery. Results are robust using samples differentiated by cross-listed status, same-day quotes instead of transaction prices and equidistant and trade-by-trade returns.
Originality/value
The authors use intraday data to reduce measurement error that is particularly pronounced when daily data are used to assess price limits that start and/or stop during a trading session. The authors contribute to the micro-structure literature by using ARIMA models with trade-by-trade and 3-min returns to alleviate some bias due to the autocorrelations in returns around price-limit hits in the presence of a magnet effect. The authors include some recent regulation changes in various countries to illustrate the importance of circuit breakers using price limits during COVID-19.
Keywords
Acknowledgements
The authors thank the Editor and three anonymous referees of this journal and B. Campbell, Y.H. Kim, D. Newton and M. Savor for their constructive comments on earlier versions of this paper. We also are very grateful for the ongoing detailed replies to our various informational requests from the officials at Borsa Istanbul. Kryzanowski thanks the Senior Concordia University Research Chair in Finance and the Social Sciences and Humanities Research Council of Canada (SSHRC, Grant #435–2018-048) for providing financial support for this project. The usual disclaimer applies.
Declarations of interest: none.
Contributions: All authors have contributed equally to the paper and the ordering of names is alphabetical.
Citation
Aktas, O.U., Kryzanowski, L. and Zhang, J. (2022), "Price-limit effectiveness: evidence from the Borsa Istanbul (BIST)", International Journal of Islamic and Middle Eastern Finance and Management, Vol. 15 No. 3, pp. 527-568. https://doi.org/10.1108/IMEFM-04-2020-0151
Publisher
:Emerald Publishing Limited
Copyright © 2021, Emerald Publishing Limited