Price Dynamics with Circuit Breakers

26 Pages Posted: 2 Jul 2019

See all articles by Sandro Claudio Lera

Sandro Claudio Lera

MIT Media Lab

Didier Sornette

ETH Zürich - Department of Management, Technology, and Economics (D-MTEC); Swiss Finance Institute

Florian Ulmann

ETH Zurich

Date Written: July 1, 2019


We develop a self-consistent model of the dynamics of an asset price in the presence of a circuit breaker (imposed trading halt). The investors' anticipation of the probability of the halt, and of the dynamics of the underlying value during the halt, feedbacks on the price process. This leads to coupled integral and stochastic differential equations. With first-order analytical solutions compared with a full numerical treatment, the theory predicts generally an increased price volatility prior to the trigger point, as has been reported in the empirical literature. The theory also shows the existence of a competition between a repelling "momentum" term associated with the propensity for investors to anchor on trends and an attractive "rational drift" term corresponding to the anticipation of the impact of the stopping period. Thus, the sole existence of a circuit breaker leads either to a beneficial effect of impeding the price drop for a while or, on the contrary, to the negative effect of attracting the price to the circuit breaker level (known as the "magnet effect"). The latter occurs when the fundamental price has larger negative drifts and is relatively close to the circuit breaker level. We successfully calibrate our model on three different circuit breakers: Cboe bitcoin futures, the Shanghai CSI300 index and the S&P500. Finally, we propose first steps toward a more robust design of circuit breakers.

Keywords: circuit breaker, trading halt, magnet effect

JEL Classification: G10, G18, C51, C54

Suggested Citation

Lera, Sandro Claudio and Sornette, Didier and Ulmann, Florian, Price Dynamics with Circuit Breakers (July 1, 2019). Available at SSRN: or

Sandro Claudio Lera (Contact Author)

MIT Media Lab ( email )

77 Massachusetts Avenue
Cambridge, MA 02139
United States

Didier Sornette

ETH Zürich - Department of Management, Technology, and Economics (D-MTEC) ( email )

Scheuchzerstrasse 7
Zurich, ZURICH CH-8092
41446328917 (Phone)
41446321914 (Fax)


Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4

Florian Ulmann

ETH Zurich ( email )

Weinbergstrasse 56/58
Zurich, 8092

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