Single-Security Circuit Breakers on the London Stock Exchange: Do They Improve Subsequent Market Quality?
James A Brugler
University of Melbourne - Department of Finance
Oliver B. Linton
University of Cambridge
August 10, 2015
This paper uses proprietary data to evaluate the efficacy of single-security circuit breakers on the London Stock Exchange. Using natural experiments, we show that although the marginal effect of suspension length on the market quality of the suspended security is insignificant, these mechanisms do help to ameliorate the spread of noise in the price process across securities during falling markets. Since circuit breakers help to prevent contagion of poor market quality across securities without leading to worse market quality for the suspended security, they can therefore be useful tools for promoting market-wide stability.
Number of Pages in PDF File: 38
Keywords: Circuit breakers, market microstructure, market quality
JEL Classification: G12, G14, G15, G18
Date posted: January 15, 2014 ; Last revised: August 17, 2015
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