An Anatomy of the Magnet Effect: Evidence from the Korea Stock Exchange High Frequency Data
We examine the existence and the forms of the magnet effect using the limit order book and transaction files of the Korea Stock Exchange. We delineate the process of the magnet effect from multiple dimensions: rate of return, trading volume, volatility, order flow, and order types. We conclude that a significant magnet effect exists in all dimensions. Investors place increasingly more orders, choose more market orders and frequently reposition quotes to advance transactions prior to the limit hits. As a result, prices accelerate to the limit prices and price volatility rises as well. In addition, strong evidence is presented to illustrate that: (i) a narrower price limit band features higher acceleration rates in all dimensions of the magnet effect than a wider price limit band; and (ii) the upper limit hits draw heavier transactions and have longer persistence of the magnet effect than the lower limit hits. Lastly, we do not find similar acceleration trajectories on large price movement days in the NYSE, confirming that the magnet effect is a phenomenon unique to the markets with daily price limit systems.
Price Limit Magnet Effect Rate of Return Trading Volume Volatility Order Flow Order Type Price Trajectory Korea Stock Exchange
Yan Du Qianqiu Liu S. Ghon Rhee
College of Business Administration University of Hawai’i at Manoa 2404 Maile Way Honolulu, HI 96822-2282, USA
国际会议
西安
英文
1-45
2006-07-17（万方平台首次上网日期，不代表论文的发表时间）