Do Market-Wide Circuit Breakers Calm the Markets or Panic Them?

38 Pages Posted: 17 May 2022

See all articles by Xiaoyang Li

Xiaoyang Li

Deakin University

Wenying Yao

University of Melbourne - Melbourne Business School

Multiple version iconThere are 4 versions of this paper

Abstract

Market-wide circuit breakers (MWCBs), which halt trading for 15 minutes across all U.S. stock exchanges, were triggered four times in March 2020. We provide some of the first evidence on the effectiveness of MWCBs using tick data. Although MWCBs increase stocks’ realized volatility and quoted spread after markets reopen, they boost stocks’ trading volume and shore up purchases of the stocks that are hit hard. We also find the market reopening mechanisms of different stock exchanges complicate the operation of MWCBs. In sum, our results suggest that the MWCBs help to stabilize the markets despite aggravating the trading environment initially.

Keywords: Circuit breakers, volatility, Liquidity, COVID-19

Suggested Citation

Li, Xiaoyang and Yao, Wenying, Do Market-Wide Circuit Breakers Calm the Markets or Panic Them?. Available at SSRN: https://ssrn.com/abstract=4111416 or http://dx.doi.org/10.2139/ssrn.4111416

Xiaoyang Li (Contact Author)

Deakin University ( email )

70 Elgar Rd
Burwood, Victoria 3125
Australia

Wenying Yao

University of Melbourne - Melbourne Business School ( email )

200 Leicester Street
Carlton, Victoria 3053 3186
Australia

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