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Market reaction to grouping equities in stock markets: An empirical analysis on Borsa Istanbul

Author

Listed:
  • Yilmaz Yildiz
  • Mehmet Baha Karan
  • Burak Pirgaip

Abstract

The main aim of this study is to investigate the market reaction to stock grouping announcements in Borsa Istanbul which requires stocks to be classified into groups “A”, “B” and “C” according to their market capitalization and floating rates. By utilizing event study analysis, our results suggest that grouping announcements have significant effect on stock prices and trading volume. The event day positive (negative) relationship between abnormal return and volume for the upgraded (downgraded) stocks supports the downward sloping demand curve hypothesis. Moreover, findings also suggest that stocks which are upgraded to Group A are exposed to more attention which is in line with the attention hypothesis. The reverse is valid for the downgraded firms. We find no evidence of price reversals and long-term symmetrical liquidity effect which lead us to reject price pressure and liquidity hypotheses. Finally, we reach controversial evidence for the information hypothesis

Suggested Citation

  • Yilmaz Yildiz & Mehmet Baha Karan & Burak Pirgaip, 2017. "Market reaction to grouping equities in stock markets: An empirical analysis on Borsa Istanbul," Borsa Istanbul Review, Research and Business Development Department, Borsa Istanbul, vol. 17(4), pages 216-227, December.
    • Handle: RePEc:bor:bistre:v:17:y:2017:i:4:p:216-227
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    File URL: http://www.sciencedirect.com/science/article/pii/S2214845017300248
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    Cited by:

    1. Burak Pirgaip & Mehmet Berktay Akyüz, 2020. "To Be Rated or To Be Indexed: Corporate Governance Rating Experience in Borsa Istanbul," Istanbul Business Research, Istanbul University Business School, vol. 49(2), pages 271-300, November.

    More about this item

    Keywords

    Equity grouping; Regulation; Price and volume effects;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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