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Liquidity flows, drawdowns and trading networks in order driven markets: An application to Borsa Istanbul

Author

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  • Çaðrý Levent Uslu
  • Burak Evren

Abstract

We empirically analyze the agent based relationship between liquidity flow and downside price formation based on the individual trading network topologies of 20 equities in Borsa Istanbul between 2009/01–2013/12. We apply PageRank Algorithm to extract daily centrality degree in liquidity demand of domestic financial institutions classified as informed traders and use intraday maximum drawdown to capture intraday liquidity shocks. We find evidence that 1) Maximum cumulative loss for a given day, deepens with the increasing liquidity demand of informed traders. 2) The uncertainty in the centrality degree of informed trading is overtime positively related with the uncertainty regarding the intraday maximum drawdown. 3) Time Patterns are significant: Drawdown depth is highest on Thursdays and lowest on Mondays. Highest (lowest) drawdowns on May (March) indicate the existence of Sell-in-May effect and earnings announcement effect, respectively.

Suggested Citation

  • Çaðrý Levent Uslu & Burak Evren, 2018. "Liquidity flows, drawdowns and trading networks in order driven markets: An application to Borsa Istanbul," Borsa Istanbul Review, Research and Business Development Department, Borsa Istanbul, vol. 18(3), pages 176-190, September.
    • Handle: RePEc:bor:bistre:v:18:y:2018:i:3:p:176-190
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    More about this item

    Keywords

    PageRank; Drawdown; Centrality; Liquidity; Information; Downside risk;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • G1 - Financial Economics - - General Financial Markets
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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