International Journal of Finance & Managerial Accounting

International Journal of Finance & Managerial Accounting

Examining the effectiveness of machine learning models in predicting the type of price hits with the price limit of Tehran Exchange Securities stocks with an emphasis on the model Histogram Gradient Boosting

Document Type : Original Article

Authors
Mostafa Khooniki 1
Ahmad Nategh Golestan 2
1 Department of System Management and Productivity, Tarbiat Modares University, Tehran, Iran
2 Department of Management, Mashhad Branch, Islamic Azad University, Mashhad, Iran/
10.30495/ijfma.2024.77856.2157
Abstract
This study examines the prediction of the type of stock prices and the price limit using End-Of-Day information in the Tehran Stock Exchange market. By using the information of 65 stock during the period of February 2021 to February 2023 and by using machine learning models, the type of hits has been investigated in terms of prices. By using some evaluation criteria, the performance of each model has been investigated. When the price hits the limit during the day and does not continue until the end of the day, and the price of the last transaction of the stock is not equal to the price of the price limit, non continuous price limit and when the price of the last transaction is equal to the price of about, the transaction is continuous price limit it will happen. The best performance was related to the Histogram Gradient Boost-ing model in February 2023 with an accuracy rate of 90 Percent. As a result, according to the level of accuracy in predicting the type of hits, it is possible to use the results of this study in the type of stock buying and selling strategy and the possibility of forming buying and selling queues
Keywords
price limit
machine learning models
continuous price limit
type of price hits
[1]          Adcock C, Ye C, Yin S, Zhang D. Are Chinese B-shares dead? An analysis of price limits on AB-shares on the Shanghai and Shenzhen Stock Exchanges. International Review of Economics and Finance 2023;85:306–15. https://doi.org/10.1016/j.iref.2023.01.012.
[2]          Chen H, Gu M, Ni B. How price limit affects the market efficiency in a short-sale constrained market? Evidence from a quasi-natural experiment. J Empir Finance 2023;73:22–39. https://doi.org/10.1016/J.JEMPFIN.2023.05.003.
[3]          Seddighi HR, Yoon I-H. Stock Market Efficiency and Price Limits: Evidence from Korea’s Recent Expansion of Price Limits. Asian Journal of Economics and Empirical Research 2018;5:191–200. https://doi.org/10.20448/journal.501.2018.52.191.200.
[4]          Lien D, Hung PH, Zhu J De, Chen YH. Price limit changes and market quality in the Taiwan Stock Exchange. Pacific Basin Finance Journal 2019;55:239–58. https://doi.org/10.1016/j.pacfin.2019.04.006.
[5]          Nobanee H, Hilu K, Hilu K. An Extreme Value Approach to Test the Effect of Price Limits on Volatility. vol. 9. 2013.
[6]          Janardanan R, Qiao X, Rouwenhorst KG. On commodity price limits. Journal of Futures Markets 2019;39:946–61. https://doi.org/10.1002/fut.21999.
[7]          Meng X, Zhang J-W, Xu J, Guo H. Quantum spatial-periodic harmonic model for daily price-limited stock markets 2014. https://doi.org/10.1016/j.physa.2015.06.041.
[8]          Lu L. Performance of price limits: Evidence from cross-listed stocks in China. J Shanghai Jiaotong Univ Sci 2016;21:247–56. https://doi.org/10.1007/s12204-016-1719-y.
[9]          Zhang X, Li X, Hao J, Li P. Price limit change and magnet effect: The role of investor attention. Financ Res Lett 2023;53:103577. https://doi.org/10.1016/J.FRL.2022.103577.
[10]        Balounejad Nouri R, Bagjavany F, Hosseini MA. Impact of Investors’ Sentiments on Volatility of Stock Exchange Index in Tehran Stock Exchange. Adv Math Fin App 2024;2024:291–303. https://doi.org/10.22034/AMFA.2023.1963410.1773.
[11]        Farag H. Price limit bands, asymmetric volatility and stock market anomalies: Evidence from emerging markets. Global Finance Journal 2013;24:85–97. https://doi.org/10.1016/j.gfj.2013.03.002.
[12]        Tai-Leung T, Hong W, Tai-Leung CHONG T, Wang D. Munich Personal RePEc Archive Price Limits and Stock Market Volatility in China Price Limits and Stock Market Volatility in China. 2014.
[13]        Farahbakhsh M, Zanjirdar M, Jahangirnia H, Safa M. Investigating the Effect of Stock Tendency of Stock Collision to Fluctuation Limit and Price Fluctuation Threshold and Change the Basis of Fluctuation Limit in Creating Returns Fluctuations. Math Fin App 2024;2024:33–51. https://doi.org/10.22034/AMFA.2021.1919729.1544.
[14]        Ahmed MS, Alhadab M. Momentum, asymmetric volatility and idiosyncratic risk-momentum relation: Does technology-sector matter? Quarterly Review of Economics and Finance 2020;78:355–71. https://doi.org/10.1016/j.qref.2020.05.005.
[15]        Belgiu M, Drăgu L. Random forest in remote sensing: A review of applications and future directions. ISPRS Journal of Photogrammetry and Remote Sensing 2016;114:24–31. https://doi.org/10.1016/j.isprsjprs.2016.01.011.
[16]        Yadudu MA. Investigating the impact of widening price limits on volatility: the Investigating the impact of widening price limits on volatility: the experience of the Nigerian Stock Exchange experience of the Nigerian Stock Exchange. vol. 44. n.d.
[17]        Balduzzi P. Stock returns, inflation, and the 'proxy hypothesis" A new look at the data. 1995.
[18]        Bao Z, Kalaycı K, Leibbrandt A, Oyarzun C. Do regulations work? A comprehensive analysis of price limits and trading restrictions in experimental asset markets with deterministic and stochastic fundamental values. J Econ Behav Organ 2020;178:59–84. https://doi.org/10.1016/j.jebo.2020.07.012.
[19]        Balounejad Nouri R, Bagjavany F, Hosseini MA. Impact of Investors’ Sentiments on Volatility of Stock Exchange Index in Tehran Stock Exchange. Adv Math Fin App 2024;2024:291–303. https://doi.org/10.22034/AMFA.2023.1963410.1773.
[20]        Farag H. The influence of price limits on overreaction in emerging markets: Evidence from the Egyptian stock market. Quarterly Review of Economics and Finance 2015;58:190–9. https://doi.org/10.1016/j.qref.2015.01.003.
[21]        Joon Byun S, Lim SS, Hyun Yun S, thank Hoon Cho W, Cooper M, Hirshleifer D, et al. Continuing Overreaction and Stock Return Predictability. 2012.
[22]        Kim YH, Yagüe J, Yang JJ. Relative performance of trading halts and price limits: Evidence from the Spanish Stock Exchange. International Review of Economics and Finance 2008;17:197–215. https://doi.org/10.1016/j.iref.2007.06.003.
[23]        Yang NT, Chu HH, Ko KC, Lee SW. Continuing overreaction and momentum in a market with price limits. Pacific Basin Finance Journal 2018;48:56–71. https://doi.org/10.1016/j.pacfin.2018.01.005.
[24]        Chen T, Gao Z, He J, Jiang W, Xiong W. NBER WORKING PAPER SERIES DAILY PRICE LIMITS AND DESTRUCTIVE MARKET BEHAVIOR. 2017.
[25]        Zhang X, Ping J, Zhu T, Li Y, Xiong X. Are price limits effective? An examination of an artificial stock market. PLoS One 2016;11. https://doi.org/10.1371/journal.pone.0160406.
[26]        Yeh CH, Yang CY. Examining the effectiveness of price limits in an artificial stock market. J Econ Dyn Control 2010;34:2089–108. https://doi.org/10.1016/j.jedc.2010.05.015.
[27]        WONG WK, LIU B, ZENG Y. Can price limits help when the price is falling? Evidence from transactions data on the Shanghai Stock Exchange. China Economic Review 2009;20:91–102. https://doi.org/10.1016/j.chieco.2008.09.002.
[28]        Wan X, Zhang J. The Effect of Relaxing Daily Price Limit: Evidence from the ChiNext Market of China. n.d.
[29]        Danışoğlu S, Güner ZN. Do price limits help control stock price volatility? Ann Oper Res 2018;260:129–57. https://doi.org/10.1007/s10479-016-2317-y.
[30]        Lien D, Hung PH, Zhu J De, Chen YH. Price limit changes and market quality in the Taiwan Stock Exchange. Pacific Basin Finance Journal 2019;55:239–58. https://doi.org/10.1016/j.pacfin.2019.04.006.
[31]        Lin CF, Chiao CH. Widening price limit effects: evidence from an emerging stock market. Appl Econ 2020;52:1476–86. https://doi.org/10.1080/00036846.2019.1676388.
[32]        Deb SS, Kalev PS, Marisetty VB. Are price limits really bad for equity markets? J Bank Financ 2010;34:2462–71. https://doi.org/10.1016/j.jbankfin.2010.04.001.
[33]        Kim KA, Park J. Why do price limits exist in stock markets? A manipulation-based explanation. European Financial Management 2010;16:296–318. https://doi.org/10.1111/j.1468-036X.2008.00456.x.
[34]        Lin C, Ko KC, Lin L, Yang NT. Price limits and the value premium in the Taiwan stock market. Pacific Basin Finance Journal 2017;41:26–45. https://doi.org/10.1016/j.pacfin.2016.12.001.
[35]        Deb SS, Kalev PS, Marisetty VB. Flexible price limits: The case of Tokyo Stock Exchange. Journal of International Financial Markets, Institutions and Money 2013;24:66–84. https://doi.org/10.1016/j.intfin.2012.11.002.
[36]        Tai Leung T. The Impact of Shanghai-Hong Kong Stock Connect on the Effectiveness of Price Limits in the Chinese Stock Market. 2019.
[37]        Mahesh B. Machine Learning Algorithms-A Review Self Flowing Generator View project Machine Learning Algorithms-A Review View project Batta Mahesh Independent Researcher Machine Learning Algorithms-A Review. International Journal of Science and Research 2018. https://doi.org/10.21275/ART20203995.
[38]        Pisner DA, Schnyer DM. Support vector machine. Machine Learning: Methods and Applications to Brain Disorders, Elsevier; 2019, p. 101–21. https://doi.org/10.1016/B978-0-12-815739-8.00006-7.
[39]        Cervantes J, Garcia-Lamont F, Rodríguez-Mazahua L, Lopez A. A comprehensive survey on support vector machine classification: Applications, challenges and trends. Neurocomputing 2020;408:189–215. https://doi.org/10.1016/j.neucom.2019.10.118.
[40]        Belgiu M, Drăgu L. Random forest in remote sensing: A review of applications and future directions. ISPRS Journal of Photogrammetry and Remote Sensing 2016;114:24–31. https://doi.org/10.1016/j.isprsjprs.2016.01.011.
[41]        Speiser JL, Miller ME, Tooze J, Ip E. A comparison of random forest variable selection methods for classification prediction modeling. Expert Syst Appl 2019;134:93–101. https://doi.org/10.1016/j.eswa.2019.05.028.
[42]        Sperandei S. Understanding logistic regression analysis. Biochem Med (Zagreb) 2014;24:12–8. https://doi.org/10.11613/BM.2014.003.
[43]        Zhang H. The Optimality of Naive Bayes. n.d.
[44]        Priyam A, Gupta R, Rathee A, Srivastava S. Comparative Analysis of Decision Tree Classification Algorithms. vol. 3. 2013.
[45]        Ibrahim M, Abdelraouf H, Amin KM, Semary N. International Journal of Computers and Information (IJCI) Keystroke dynamics based user authentication using Histogram Gradient Boosting. n.d.
[46]        Chahal A, Gulia P. Machine learning and deep learning. International Journal of Innovative Technology and Exploring Engineering 2019;8:4910–4. https://doi.org/10.35940/ijitee.L3550.1081219.
[47]        Anand A, Chakravarty S. Stealth-Trading in Options Markets Forthcoming: The Journal of Financial and Quantitative Analysis Stealth-Trading in Options Markets. 2005.