The Cross-Sectional Spillovers of Single Stock Circuit Breakers

41 Pages Posted: 15 Jan 2014 Last revised: 27 Feb 2016

James A Brugler

University of Melbourne - Department of Finance

Oliver B. Linton

University of Cambridge

Date Written: February 22, 2016

Abstract

This paper uses transaction data to estimate the effect of single stock circuit breakers on other stocks that remain in continuous trading (the “spillover effect”). We find that circuit breakers lead to significant trading, volatility and price spillovers for stocks that remain in continuous trading and that this is driven primarily by traders hedging against further mark-to-market losses in the suspended stock. The effect is stronger when market-wide volatility is relatively high, however when stock prices are highly correlated, circuit breakers play a more beneficial role.

Keywords: Circuit breakers, market microstructure, market quality

JEL Classification: G12, G14, G15, G18

Suggested Citation

Brugler, James A and Linton, Oliver B., The Cross-Sectional Spillovers of Single Stock Circuit Breakers (February 22, 2016). Available at SSRN: https://ssrn.com/abstract=2379029 or http://dx.doi.org/10.2139/ssrn.2379029

James A Brugler (Contact Author)

University of Melbourne - Department of Finance ( email )

Faculty of Business and Economics
Parkville, Victoria 3010 3010
Australia

Oliver B. Linton

University of Cambridge ( email )

Faculty of Economics
Cambridge, CB3 9DD
United Kingdom

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