Single Stock Circuit Breakers on the London Stock Exchange: Do They Improve Subsequent Market Quality?
University of Cambridge; Bank of England
Oliver B. Linton
University of Cambridge
August 28, 2014
This paper uses proprietary data to evaluate the efficacy of single-stock circuit breakers on the London Stock Exchange during July and August 2011. Using natural experiments we show that although the marginal effect of suspension length on the market quality of the suspended security is dependent on the history of the trading process, these mechanisms do help to ameliorate the spread of market microstructure noise across securities during falling markets. By preventing the spread of poor market quality across securities in falling markets, circuit breakers can be useful tools for promoting market-wide stability.
Number of Pages in PDF File: 54
Keywords: Circuit breakers, market microstructure, market quality
JEL Classification: G12, G14, G15, G18working papers series
Date posted: January 15, 2014 ; Last revised: September 1, 2014
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