Magnet effect of price limits: evidence from Bursa Malaysia

Since the late 1980s it has become a common practice worldwide—especially in frontier markets—to impose price limits on stock prices, effectively stunting its intraday growth or decline beyond a certain bracket. Ostensibly, its purport is to prevent investor overreaction, regulatory control of marke...

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Main Authors:	Mohammad Sifat, Imtiaz, Mohamad, Azhar
Format:	Conference or Workshop Item
Language:	English English
Published:	2017
Subjects:	HG Finance HG4501 Stocks, investment, speculation
Online Access:	http://irep.iium.edu.my/59710/ http://irep.iium.edu.my/59710/ http://irep.iium.edu.my/59710/1/Osaka%20Dec%202017%20paper%20-%20magnet%20effect.pdf http://irep.iium.edu.my/59710/2/Osaka%20Dec%202017%20acceptance.pdf

id	iium-59710
recordtype	eprints
spelling	iium-597102017-12-04T08:06:59Z http://irep.iium.edu.my/59710/ Magnet effect of price limits: evidence from Bursa Malaysia Mohammad Sifat, Imtiaz Mohamad, Azhar HG Finance HG4501 Stocks, investment, speculation Since the late 1980s it has become a common practice worldwide—especially in frontier markets—to impose price limits on stock prices, effectively stunting its intraday growth or decline beyond a certain bracket. Ostensibly, its purport is to prevent investor overreaction, regulatory control of market micro-structure, prevention of crash, and to smoothen excessive volatility. The most ubiquitous form of circuit breaker is price limit, which is used in equity and futures markets. The ranges of existing price limits vary geographically and from exchange to exchange. Academics and regulators have divergent opinions on application of circuit breakers and its resultant positive or negative effects. To put it concisely, the efficacy of circuit breakers is hotly disputed and evidence is still inconclusive for either camp. A lot of academic studies claim circuit breakers have the opposite of intended effects—i.e. they result in attracting prices to the limits by their very existence and thus defeating the volatility tempering objective. Utilizing Historical daily price from 1994 till 2017 in Bursa Malaysia, we employ two logistic regression models to check whether magnet effect exists. Having divided the study period into 3 distinct regimes based on regulatory limit mechanisms, we find evidence of strong magnet effect in Bursa Malaysia throughout the period, which was especially pronounced between 2002 and 2013. Also, for all samplings, we find magnet effect more accentuated for upper limit scenarios. 2017 Conference or Workshop Item NonPeerReviewed application/pdf en http://irep.iium.edu.my/59710/1/Osaka%20Dec%202017%20paper%20-%20magnet%20effect.pdf application/pdf en http://irep.iium.edu.my/59710/2/Osaka%20Dec%202017%20acceptance.pdf Mohammad Sifat, Imtiaz and Mohamad, Azhar (2017) Magnet effect of price limits: evidence from Bursa Malaysia. In: 44th International Business Research Conference 2017, 13th-14th December 2017, Osaka, Japan. (Unpublished) http://worldbizconference.com/
repository_type	Digital Repository
institution_category	Local University
institution	International Islamic University Malaysia
building	IIUM Repository
collection	Online Access
language	English English
topic	HG Finance HG4501 Stocks, investment, speculation
spellingShingle	HG Finance HG4501 Stocks, investment, speculation Mohammad Sifat, Imtiaz Mohamad, Azhar Magnet effect of price limits: evidence from Bursa Malaysia
description	Since the late 1980s it has become a common practice worldwide—especially in frontier markets—to impose price limits on stock prices, effectively stunting its intraday growth or decline beyond a certain bracket. Ostensibly, its purport is to prevent investor overreaction, regulatory control of market micro-structure, prevention of crash, and to smoothen excessive volatility. The most ubiquitous form of circuit breaker is price limit, which is used in equity and futures markets. The ranges of existing price limits vary geographically and from exchange to exchange. Academics and regulators have divergent opinions on application of circuit breakers and its resultant positive or negative effects. To put it concisely, the efficacy of circuit breakers is hotly disputed and evidence is still inconclusive for either camp. A lot of academic studies claim circuit breakers have the opposite of intended effects—i.e. they result in attracting prices to the limits by their very existence and thus defeating the volatility tempering objective. Utilizing Historical daily price from 1994 till 2017 in Bursa Malaysia, we employ two logistic regression models to check whether magnet effect exists. Having divided the study period into 3 distinct regimes based on regulatory limit mechanisms, we find evidence of strong magnet effect in Bursa Malaysia throughout the period, which was especially pronounced between 2002 and 2013. Also, for all samplings, we find magnet effect more accentuated for upper limit scenarios.
format	Conference or Workshop Item
author	Mohammad Sifat, Imtiaz Mohamad, Azhar
author_facet	Mohammad Sifat, Imtiaz Mohamad, Azhar
author_sort	Mohammad Sifat, Imtiaz
title	Magnet effect of price limits: evidence from Bursa Malaysia
title_short	Magnet effect of price limits: evidence from Bursa Malaysia
title_full	Magnet effect of price limits: evidence from Bursa Malaysia
title_fullStr	Magnet effect of price limits: evidence from Bursa Malaysia
title_full_unstemmed	Magnet effect of price limits: evidence from Bursa Malaysia
title_sort	magnet effect of price limits: evidence from bursa malaysia
publishDate	2017
url	http://irep.iium.edu.my/59710/ http://irep.iium.edu.my/59710/ http://irep.iium.edu.my/59710/1/Osaka%20Dec%202017%20paper%20-%20magnet%20effect.pdf http://irep.iium.edu.my/59710/2/Osaka%20Dec%202017%20acceptance.pdf
first_indexed	2023-09-18T21:24:36Z
last_indexed	2023-09-18T21:24:36Z
_version_	1777412107502878720

Magnet effect of price limits: evidence from Bursa Malaysia

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