An Experimental Study of Circuit Breakers: The Effects of Mandated Market Closures and Temporary Halts on Market Behavior

Federal Reserve Bank of Atlanta Working Paper No. 99-1

Posted: 10 May 1999  

Lucy F. Ackert

Kennesaw State University - Michael J. Coles College of Business; Federal Reserve Bank of Atlanta

Bryan K. Church

Georgia Institute of Technology - Accounting Area

Narayanan Jayaraman

Georgia Institute of Technology - Scheller College of Business

Date Written: March 1999

Abstract

This paper analyzes the effect of circuit breakers on price ehavior, trading volume, and profit-making ability in a market setting. We conduct nine experimental asset markets to compare behavior across three regulatory regimes: market closure, temporary halt, and no interruption. The presence of a circuit breaker rule does not affect the magnitude of the absolute deviation in price from fundamental value or trading profit. The primary driver of behavior is information asymmetry in the market. By comparison, trading activity is significantly affected by the presence of a circuit breaker. Mandated market closures cause market participants to advance trades.

JEL Classification: D40, G10, G14

Suggested Citation

Ackert, Lucy F. and Church, Bryan K. and Jayaraman, Narayanan, An Experimental Study of Circuit Breakers: The Effects of Mandated Market Closures and Temporary Halts on Market Behavior (March 1999). Federal Reserve Bank of Atlanta Working Paper No. 99-1. Available at SSRN: https://ssrn.com/abstract=162571

Lucy F. Ackert

Kennesaw State University - Michael J. Coles College of Business ( email )

1000 Chastain Road
Department of Economics and Finance
Kennesaw, GA 30144
United States
770-423-6111 (Phone)
770-499-3209 (Fax)

Federal Reserve Bank of Atlanta

1000 Peachtree Street N.E.
Atlanta, GA 30309-4470
United States

Bryan K. Church

Georgia Institute of Technology - Accounting Area ( email )

755 Ferst Drive
Atlanta, GA 30332-0250
United States
404-894-3907 (Phone)
404-894-6030 (Fax)

Narayanan Jayaraman (Contact Author)

Georgia Institute of Technology - Scheller College of Business ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States
404-894-4389 (Phone)
404-894-6030 (Fax)

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