FRGS final report: regulating a mis-regulation of trading halts through a comprehensive financial legal framework for the protection of investors’ interest

Utilizing an experimental Non-linear ARDL technique (NARDL), this paper tests an ex-ante hypothesized side-effect of financial market circuit breakers called the magnet effect. The hypothesis states that, in large price swing scenarios, circuit breakers (limits or halts), by their very existence, in...

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Main Author: Mohamad, Azhar
Format: Monograph
Language:English
Published: 2019
Subjects:
Online Access:http://irep.iium.edu.my/69724/
http://irep.iium.edu.my/69724/1/Profile%20of%20FRGS%20Final%20Report%20-%20Dr%20Azhar%20Mohamad.pdf
id iium-69724
recordtype eprints
spelling iium-697242019-01-17T03:03:51Z http://irep.iium.edu.my/69724/ FRGS final report: regulating a mis-regulation of trading halts through a comprehensive financial legal framework for the protection of investors’ interest Mohamad, Azhar HG4501 Stocks, investment, speculation Utilizing an experimental Non-linear ARDL technique (NARDL), this paper tests an ex-ante hypothesized side-effect of financial market circuit breakers called the magnet effect. The hypothesis states that, in large price swing scenarios, circuit breakers (limits or halts), by their very existence, invite trading activities towards themselves in a way that the prophecy of the trigger is fulfilled. Most empirical works testing this effect hail from East Asian exchanges, which typically employ a tight price band. Our empirical venue, Bursa Malaysia, is a marked exception, sticking to a ±30% limit since 1989. Employing high-frequency (millisecond) proprietary intraday data from 2015 to 2017, we examine the magnet effect through order aggression and price velocity as the possibility of a limit draws closer. We find evidence of moderate magnet effect for most stocks, suggesting accelerated trading activities proportionate to likelihood of a limit-hit. The effect is more pronounced for lower limit stocks. Interestingly, several upper limit scenarios also exhibit the opposite of magnet effect: the repellent effect, suggesting investors recoil from trading when a limit-hit appears imminent. We discuss several regulatory, industry, and academic implications of our findings. 2019-01-15 Monograph NonPeerReviewed application/pdf en http://irep.iium.edu.my/69724/1/Profile%20of%20FRGS%20Final%20Report%20-%20Dr%20Azhar%20Mohamad.pdf Mohamad, Azhar (2019) FRGS final report: regulating a mis-regulation of trading halts through a comprehensive financial legal framework for the protection of investors’ interest. Research Report. UNSPECIFIED. (Unpublished)
repository_type Digital Repository
institution_category Local University
institution International Islamic University Malaysia
building IIUM Repository
collection Online Access
language English
topic HG4501 Stocks, investment, speculation
spellingShingle HG4501 Stocks, investment, speculation
Mohamad, Azhar
FRGS final report: regulating a mis-regulation of trading halts through a comprehensive financial legal framework for the protection of investors’ interest
description Utilizing an experimental Non-linear ARDL technique (NARDL), this paper tests an ex-ante hypothesized side-effect of financial market circuit breakers called the magnet effect. The hypothesis states that, in large price swing scenarios, circuit breakers (limits or halts), by their very existence, invite trading activities towards themselves in a way that the prophecy of the trigger is fulfilled. Most empirical works testing this effect hail from East Asian exchanges, which typically employ a tight price band. Our empirical venue, Bursa Malaysia, is a marked exception, sticking to a ±30% limit since 1989. Employing high-frequency (millisecond) proprietary intraday data from 2015 to 2017, we examine the magnet effect through order aggression and price velocity as the possibility of a limit draws closer. We find evidence of moderate magnet effect for most stocks, suggesting accelerated trading activities proportionate to likelihood of a limit-hit. The effect is more pronounced for lower limit stocks. Interestingly, several upper limit scenarios also exhibit the opposite of magnet effect: the repellent effect, suggesting investors recoil from trading when a limit-hit appears imminent. We discuss several regulatory, industry, and academic implications of our findings.
format Monograph
author Mohamad, Azhar
author_facet Mohamad, Azhar
author_sort Mohamad, Azhar
title FRGS final report: regulating a mis-regulation of trading halts through a comprehensive financial legal framework for the protection of investors’ interest
title_short FRGS final report: regulating a mis-regulation of trading halts through a comprehensive financial legal framework for the protection of investors’ interest
title_full FRGS final report: regulating a mis-regulation of trading halts through a comprehensive financial legal framework for the protection of investors’ interest
title_fullStr FRGS final report: regulating a mis-regulation of trading halts through a comprehensive financial legal framework for the protection of investors’ interest
title_full_unstemmed FRGS final report: regulating a mis-regulation of trading halts through a comprehensive financial legal framework for the protection of investors’ interest
title_sort frgs final report: regulating a mis-regulation of trading halts through a comprehensive financial legal framework for the protection of investors’ interest
publishDate 2019
url http://irep.iium.edu.my/69724/
http://irep.iium.edu.my/69724/1/Profile%20of%20FRGS%20Final%20Report%20-%20Dr%20Azhar%20Mohamad.pdf
first_indexed 2023-09-18T21:38:59Z
last_indexed 2023-09-18T21:38:59Z
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