Aberrant investor participation amid substantial price swings: high-frequency evidence of magnet-repellent effect from Malaysia

Price limits have skirted controversy since inception. Regulators claim limits curb volatility, allay stressed markets, and encourage reflection on information to trade rationally. Opponents contend saying limits delay the inevitable by postponing volatility, deferring equilibrium price discovery, a...

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Main Authors:	Sifat, Imtiaz Mohammad, Mohamad, Azhar, Hamid, Zarinah
Format:	Article
Language:	English English English
Published:	Routledge 2019
Subjects:	HG Finance HG4001 Financial management. Business finance. Corporation finance.
Online Access:	http://irep.iium.edu.my/72694/ http://irep.iium.edu.my/72694/ http://irep.iium.edu.my/72694/ http://irep.iium.edu.my/72694/9/72694_Aberrant%20investor%20participation%20amid_MYRA.pdf http://irep.iium.edu.my/72694/2/72694_Aberrant%20investor%20participation%20amid_SCOPUS.pdf http://irep.iium.edu.my/72694/15/72694_Aberrant%20investor%20participation%20amid%20substantial%20price%20swing%20high-frequency%20evidence%20of%20magnet-repellent%20effect%20from%20Malaysia_WOS.pdf

id	iium-72694
recordtype	eprints
spelling	iium-726942019-08-02T07:59:11Z http://irep.iium.edu.my/72694/ Aberrant investor participation amid substantial price swings: high-frequency evidence of magnet-repellent effect from Malaysia Sifat, Imtiaz Mohammad Mohamad, Azhar Hamid, Zarinah HG Finance HG4001 Financial management. Business finance. Corporation finance. Price limits have skirted controversy since inception. Regulators claim limits curb volatility, allay stressed markets, and encourage reflection on information to trade rationally. Opponents contend saying limits delay the inevitable by postponing volatility, deferring equilibrium price discovery, and obtrude investors’ trading plans. While these undesired effects are all ex-post in nature, some argue that limits – by very existence – threaten to invite trading activities towards themselves and govern trade-flow such that the limit’s prophecy is fulfilled. This is known as magnet effect. Theoretical development of this ex-ante effect has been in hibernation since the 1990s. Thus, empirical attempts have been made to test its existence – mostly in East-Asian exchanges with tight limits. Bursa Malaysia, however, defends its ±30% limit for ~30 years based on internal (unpublished) studies. This paper employs a battery of tests to examine the existence and magnitude of magnet effect and – its counterpart – repellent effect in Malaysia. Our findings suggest a weak form of magnet effect and comparable degrees of repellent effect. Moreover, we report price acceleration beyond a threshold point unsupported by order aggression or volume support necessary to constitute a magnet effect. We discuss policy import of our findings and recommend future research avenues worthy of pursuit. Price limits’ opponents argue that limits can threaten to invite trading activities towards themselves such that the limit’s prophecy is fulfilled. Existence of this phenomenon—the magnet effect—has been tested mostly in exchanges with tight limits. This paper employs a battery of tests to examine the existence and magnitude of magnet effect in Bursa Malaysia, which employs a wide price limit. Our findings suggest a weak form of magnet effect and comparable degrees of repellent effect. Moreover, we report price acceleration beyond a threshold point unsupported by order aggression or volume support necessary to constitute magnet effect. Routledge 2019-01-02 Article PeerReviewed application/pdf en http://irep.iium.edu.my/72694/9/72694_Aberrant%20investor%20participation%20amid_MYRA.pdf application/pdf en http://irep.iium.edu.my/72694/2/72694_Aberrant%20investor%20participation%20amid_SCOPUS.pdf application/pdf en http://irep.iium.edu.my/72694/15/72694_Aberrant%20investor%20participation%20amid%20substantial%20price%20swing%20high-frequency%20evidence%20of%20magnet-repellent%20effect%20from%20Malaysia_WOS.pdf Sifat, Imtiaz Mohammad and Mohamad, Azhar and Hamid, Zarinah (2019) Aberrant investor participation amid substantial price swings: high-frequency evidence of magnet-repellent effect from Malaysia. Macroeconomics and Finance in Emerging Market Economies, 12 (1). pp. 71-94. ISSN 1752-0843 https://www.tandfonline.com/doi/full/10.1080/17520843.2019.1567567?scroll=top&needAccess=true 10.1080/17520843.2019.1567567
repository_type	Digital Repository
institution_category	Local University
institution	International Islamic University Malaysia
building	IIUM Repository
collection	Online Access
language	English English English
topic	HG Finance HG4001 Financial management. Business finance. Corporation finance.
spellingShingle	HG Finance HG4001 Financial management. Business finance. Corporation finance. Sifat, Imtiaz Mohammad Mohamad, Azhar Hamid, Zarinah Aberrant investor participation amid substantial price swings: high-frequency evidence of magnet-repellent effect from Malaysia
description	Price limits have skirted controversy since inception. Regulators claim limits curb volatility, allay stressed markets, and encourage reflection on information to trade rationally. Opponents contend saying limits delay the inevitable by postponing volatility, deferring equilibrium price discovery, and obtrude investors’ trading plans. While these undesired effects are all ex-post in nature, some argue that limits – by very existence – threaten to invite trading activities towards themselves and govern trade-flow such that the limit’s prophecy is fulfilled. This is known as magnet effect. Theoretical development of this ex-ante effect has been in hibernation since the 1990s. Thus, empirical attempts have been made to test its existence – mostly in East-Asian exchanges with tight limits. Bursa Malaysia, however, defends its ±30% limit for ~30 years based on internal (unpublished) studies. This paper employs a battery of tests to examine the existence and magnitude of magnet effect and – its counterpart – repellent effect in Malaysia. Our findings suggest a weak form of magnet effect and comparable degrees of repellent effect. Moreover, we report price acceleration beyond a threshold point unsupported by order aggression or volume support necessary to constitute a magnet effect. We discuss policy import of our findings and recommend future research avenues worthy of pursuit. Price limits’ opponents argue that limits can threaten to invite trading activities towards themselves such that the limit’s prophecy is fulfilled. Existence of this phenomenon—the magnet effect—has been tested mostly in exchanges with tight limits. This paper employs a battery of tests to examine the existence and magnitude of magnet effect in Bursa Malaysia, which employs a wide price limit. Our findings suggest a weak form of magnet effect and comparable degrees of repellent effect. Moreover, we report price acceleration beyond a threshold point unsupported by order aggression or volume support necessary to constitute magnet effect.
format	Article
author	Sifat, Imtiaz Mohammad Mohamad, Azhar Hamid, Zarinah
author_facet	Sifat, Imtiaz Mohammad Mohamad, Azhar Hamid, Zarinah
author_sort	Sifat, Imtiaz Mohammad
title	Aberrant investor participation amid substantial price swings: high-frequency evidence of magnet-repellent effect from Malaysia
title_short	Aberrant investor participation amid substantial price swings: high-frequency evidence of magnet-repellent effect from Malaysia
title_full	Aberrant investor participation amid substantial price swings: high-frequency evidence of magnet-repellent effect from Malaysia
title_fullStr	Aberrant investor participation amid substantial price swings: high-frequency evidence of magnet-repellent effect from Malaysia
title_full_unstemmed	Aberrant investor participation amid substantial price swings: high-frequency evidence of magnet-repellent effect from Malaysia
title_sort	aberrant investor participation amid substantial price swings: high-frequency evidence of magnet-repellent effect from malaysia
publisher	Routledge
publishDate	2019
url	http://irep.iium.edu.my/72694/ http://irep.iium.edu.my/72694/ http://irep.iium.edu.my/72694/ http://irep.iium.edu.my/72694/9/72694_Aberrant%20investor%20participation%20amid_MYRA.pdf http://irep.iium.edu.my/72694/2/72694_Aberrant%20investor%20participation%20amid_SCOPUS.pdf http://irep.iium.edu.my/72694/15/72694_Aberrant%20investor%20participation%20amid%20substantial%20price%20swing%20high-frequency%20evidence%20of%20magnet-repellent%20effect%20from%20Malaysia_WOS.pdf
first_indexed	2023-09-18T21:43:01Z
last_indexed	2023-09-18T21:43:01Z
_version_	1777413266499174400

Aberrant investor participation amid substantial price swings: high-frequency evidence of magnet-repellent effect from Malaysia

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