آیا سیاست های نظارتی جریان اطلاعات در بازارهای نوظهور را تحت تاثیر قرار می دهد؟

In a previous paper we established that volatility is best explained by contemporaneous rather than lagged trading volume in the Egyptian stock exchange (EGX). The main objective of this paper is to investigate the effects of regulatory policies – namely the switch from price limit to circuit breaker – on the dynamic relationship between trading volume and stock returns volatility in the EGX. Using daily returns data for 20 actively traded companies as well as the EGX30 market index, the Generalised Method of Moments (GMM), results show that the volume–volatility relationship is not only endogenous but is also structurally altered by the switch.

Information-based models are widely used to explain the dynamic relationship between trading volume and stock returns volatility. The Mixture of Distributions Hypothesis (MDH) introduced by Clark (1973) and developed by Epps and Epps (1976), Tauchen and Pitts (1983) and Lamoureux and Lastrapes (1990) argue that incorporation of trading volume in the conditional variance for stock returns produces a secular decrease in estimated conditional volatility persistence. MDH assumes that the information arriving to the market is available to all traders simultaneously, so that dissemination of information is symmetric and the new equilibrium is attained consequent on this. In the light of MDH contemporaneous trading volume explains stock price volatility, as there is no information content in lagged trading volume with respect to stock price change. However, the model assumes that all traders receive information simultaneously. Copeland (1976), Jennings et al. (1981) and Smirlock and Starks (1985) therefore introduced an alternative explanation of the volume–volatility relationship namely, the Sequential Information Arrival Hypothesis (SIAH). According to SIAH, investors receive information randomly and sequentially, so that the dissemination of information is asymmetric and the final equilibrium is the sum of the sequential equilibria. Informed traders adjust their positions according to the information arrived to the market sequentially, so that lagged trading volume now has predictive power over future stock price changes. The present paper provides a critical test of the two competing theories (MDH and SIAH) using emerging market data, specifically from Egypt, one of the leading emerging stock markets in the MENA region.2 The Egyptian stock market (EGX) provides unique data for such a test as firms were progressively moved from a price limit regime (SPL) to a circuit breaker (CB) over the period of study. During the global financial crisis of 2007–2008 the Egyptian economy achieved a remarkable real GDP growth rate of 7.2% in 2007 and 4.2% 2008, whilst some leading developed economies languished with negative or zero growth. As a result, Egypt was chosen by the Economic Reform Forum of the World Bank among the seven best countries in the world in taking effective steps for economic reform and enhancing the investment climate. According to the World Federation of Exchanges’ (WFE) statistics in 2008 the Egyptian stock exchange (EGX) is one of the leading emerging markets in the Europe – Africa – Middle East region. The EGX was ranked 13th with a market capitalization of 85 247.2 million US$ in 2008, compared to 139 273.8 million US$ in 2007 and ahead of many leading world stock exchanges. Also EGX was ranked 9th in terms of number of listed companies (373 in total). The trading value of the exchange in 2008 was 93 475.7 million US$, and in that same year average daily turnover 383.1 million US$. Finally the average P/E ratio in 2008 was 9.3. EGX30 trading regulations initially maintained a 5 percent ceiling/floor restriction over a stock's price, compared to its closing price in the last trading session. However, as the stock market developed, the need to remove or relax price controls became seen as imperative. On 21 July 2003, EGX commenced a new price ceiling system, whereby the daily price limit was widened to ±20 percent. To ensure market fairness and investor protection, if any of the stocks weighted average price exceeded ±10 percent from its opening price during the trading session, the trading would be halted for half an hour. When the session was resumed, if the stock's weighted average price exited the 20 percent band, trading on this stock would be halted until the end of the session. The current paper, then, has two main objectives – using data on 20 most actively traded companies as well as the Egyptian stock market index EGX30 – to establish whether information arrives to market participants contemporaneously (the Mixture of Distributions or MDH hypothesis) or sequentially (the Sequential Information Arrival or SIAH hypothesis); and to examine whether or not the flows of information are structurally altered when the regulator switches the control of its stock price from a strict price limit regime (SPL) to a circuit breaker (CB) regime. Thus, the paper has obvious policy implications for stock market since links the volume–volatility relationship to regulatory actions. We find an evidence to validate both MDH and SIAH hypotheses, conditional on the regulatory regime. The results of Generalised Method of Moments (GMM) show that there is a contemporaneous effect of daily flow of information on both trading volume and stock return volatility in SPL window, therefore volume and volatility are endogenous to the system. This result supports the argument of MDH as both volume and volatility can be driven from assumed exogenous variable namely information dissemination, Farag and Cressy (2010). However, significant negative relationship between lagged trading volume, and stock returns volatility are found within CB windows, so that, and consistent with Blume et al. (1994), Foster (1995), Ciner (2002), and Farag and Cressy (2010) trading volume convey valuable information to predict stock return volatility within CB window. This result supports the SIAH and can be attributed to the inefficiency of price discovery mechanism, noise trading and insider information in the Egyptian stock exchange within CB window. In addition switching from a SPL regime to a CB regime is found to raise the EGX volatility rather than lowering them, as intended ( Lee et al., 1994). The rest of the paper is organised as follows. Section 2 presents a survey of the literature. Section 3 provides a discussion of our dataset. Section 4 provides details of the econometric modelling. Section 5 reports the empirical results and a final section summarises and concludes.

In this paper we investigate whether information arrives to market participants contemporaneously (the Mixture of Distributions or MDH hypothesis of Clark, 1973) or sequentially (the Sequential Information Arrival or SIAH hypothesis of Copeland, 1976); and to examine whether trading volume or other proxies for information arrival can eliminate volatility persistence. The paper also aims to establish whether or not the flows of information are structurally altered when the regulator switches the control of its stock price from a strict price limit regime (SPL) to a circuit breaker (CB) regime. Using daily return data for 20 firms as well as the Egyptian market index EGX30, we find that, volume–volatility relationship is not only endogenous but is also structurally altered by the switch. Results also show that as a proxy for information arrival to the market, volatility is best explained by contemporaneous rather than lagged volume, and by contemporaneous rather than lagged intraday volatility, Farag and Cressy (2010). In addition, switching from an SPL to a CB regime is also found to raise the volatility, rather than lowering them, as intended. Finally GMM result shows that, there is a contemporaneous effect of daily flow of information on both trading volume and stock return volatility in SPL window, therefore volume and volatility are endogenous to the system. This result supports the argument of MDH as both volume and volatility can be driven from assumed exogenous variable namely information dissemination. However, significant negative relationship between lagged trading volume, and stock returns volatility is found within CB window, so that, and consistent with Blume et al. (1994), Foster (1995), Ciner (2002), and Farag and Cressy (2010) trading volume conveys valuable information to predict stock return volatility within CB window. This result supports the SIAH and can be attributed to the inefficiency of price discovery mechanism, noise trading and insider information in the Egyptian stock exchange within CB window. We can interpret our results as follows, within price limit regime, imposing price limits prevent speculative traders from responding to the new information that leads to delayed reaction of price discovery as the result of the release of new information to the market. On the contrary within circuit breakers regime and during the halt period which lasts 30 min (when stock prices exceed 10%), investors have a chance to adjust their portfolios and to react to the new information arrived to the market. However not all investors being informed with this new information due to the lack of both operational and informational efficiency, as well as the role of noise traders during the halt period, all that leads to potential increase in the Egyptian stock market volatility in favour the SIAH. These findings are new to the literature which has exclusively used a dummy variable approach to comparing different regimes.21 We argue that the efficiency of the price discovery mechanism in the Egyptian stock exchange differs between the two regimes and that is reflected in the subsequent trading activity—as found by Lee et al. (1994). In addition, traders are unable to reveal their demand during the halts period, so that post-halt security prices are likely to be much noisier and significantly different from equilibrium valuations. Therefore, higher volume and volatility are expected when trading is resumed.22 Whereas within the symmetric price limit regime, as prices hit the limit, price discovery mechanism is delayed to the following day(s), so traders have more time to analyse and interpret new information arrived to the market, consequently, we expect lower volume and volatility.