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The Magnet Effect of Circuit Breakers and Its Interactions with Price Limits

17 Pages Posted: 13 Jan 2017  

Kin Ming Wong

Hong Kong Baptist University (HKBU)

Xiaowei Kong

Chu Hai College of Higher Education

Min Li

Shenzhen GTA Information Technology Co., Ltd

Date Written: November 29, 2016

Abstract

Market-wide circuit breaker is one of typical market mechanisms in stock exchanges but little evidence exists on its impacts on stock returns. Using high frequency data during the four-day period which a circuit breaker was imposed in Chinese stock exchanges, this paper examines the magnet effect of market-wide circuit breakers and its interactions with the magnet effect of price limits. We provide evidences that magnet effect of circuit breaker exists in both market index returns and individual stock returns. Furthermore, magnet effect of price ceilings magnifies when a trigger of market-wide circuit breaker is more likely.

Keywords: Circuit Breaker; Price Limits; Magnet Effect; High Frequency Stock Data

JEL Classification: G10; G14; G18

Suggested Citation

Wong, Kin Ming and Kong, Xiaowei and Li, Min, The Magnet Effect of Circuit Breakers and Its Interactions with Price Limits (November 29, 2016). Available at SSRN: https://ssrn.com/abstract=2897328 or http://dx.doi.org/10.2139/ssrn.2897328

Kin Ming Wong (Contact Author)

Hong Kong Baptist University (HKBU) ( email )

Kowloon
Hong Kong

Xiaowei Kong

Chu Hai College of Higher Education ( email )

Yi Lok Street, Rivera Gardens
Tsuen Wan
Hong Kong

Min Li

Shenzhen GTA Information Technology Co., Ltd

18/F
Zhongshen Building
7003 Beihuan Dadao Shenzhen, 518034
China

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