Circuit Breakers, Trading Collars, and Volatility Transmission Across Markets: Evidence from NYSE Rule 80A

21 Pages Posted: 17 Jul 2015

Date Written: August 2015

Abstract

The NYSE's Rule 80A attempted to delink the futures and equity markets by limiting index arbitrage trades in the same direction as the last trade to reduce stock market volatility. Rule 80A leads to a small but statistically significant decline in intraday U.S. equity market volatility. In addition, the results are asymmetric: volatility is dampened more in a rising market than in a declining one. These results suggest that, to a limited extent, rule restrictions on trading can sufficiently delink the futures and equity markets enough to reduce the transmission of volatility.

Keywords: circuit breakers, trading collars, trading halts, NYSE Rule 80A, microstructure, volatility transmission

JEL Classification: G18, G19, G24, G28

Suggested Citation

Goldstein, Michael A., Circuit Breakers, Trading Collars, and Volatility Transmission Across Markets: Evidence from NYSE Rule 80A (August 2015). Financial Review, Vol. 50, Issue 3, pp. 459-479, 2015. Available at SSRN: https://ssrn.com/abstract=2631837 or http://dx.doi.org/10.1111/fire.12074

Michael A. Goldstein (Contact Author)

Babson College - Finance Division ( email )

320 Tomasso Hall
Babson Park, MA 02457-0310
United States
781-239-4402 (Phone)
781-239-5004 (Fax)

HOME PAGE: http://faculty.babson.edu/goldstein/

Register to save articles to
your library

Register

Paper statistics

Downloads
0
Abstract Views
398
PlumX Metrics