Informed trading around extreme events in Borsa Istanbul

Abstract

On February 22, 2017, two Turkish blue-chip stocks Ko¸c Holding (KCHOL) and Turkcell (TCELL) experienced a simultaneous flash event resulting in a sudden price crash during the continuous auction in Borsa Istanbul Equity Market, right before the market closing time. Both stocks experienced a nearby 10% fall before subsequent price recovery. KCHOL (TCELL) falls as much as %9.86 (%10.77) between 17:45:00 – 17:45:01 time period for an approximately 1-second interval. Before the respective event, order flow toxicity for informed trading proxy VPIN – Volume-Synchronized Probability of Informed Trading shows consecutive increasing behavior even before the sudden crash for TCELL whereas no concrete in advance reaction for KCHOL. VPIN levels for KCHOL (TCELL) increase (decrease) in the course of the post-event interval. Such a difference may be interpreted as increasing (decreasing) order flow toxicity for KCHOL (TCELL) trade balance. Univariate and multivariate regressions’ implied empirical findings result in the statistically signifi cant predictive power of VPIN for TCELL on impending VWAP - Volume Weighted Average Price pattern. However, for KCHOL, no reliable explanatory role of VPIN after considering control variables. Such indefinite results may imply different algorithmic trading strategy execution for KCHOL and TCELL with respect to the event and post-event periods