Circuit Breakers with Uncertainty About the Presence of Informed Agents: I Know What You Know . . . I Think

34 Pages Posted: 9 Aug 2005

See all articles by Lucy F. Ackert

Lucy F. Ackert

Kennesaw State University - Michael J. Coles College of Business

Bryan K. Church

Georgia Institute of Technology - Accounting Area

Narayanan Jayaraman

Georgia Institute of Technology - Scheller College of Business

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Abstract

This study conducts experimental asset markets to examine the effects of circuit breaker rules on market behavior when agents are uncertain about the presence of private information. Our results unequivocally indicate that circuit breakers fail to temper unwarranted price movements in periods without private information. Agents appear to mistakenly infer that others possess private information, causing price to move away from fundamental value. Allocative efficiencies in our markets are high across all regimes. Circuit breakers perform no useful function in our experimental asset markets.

Suggested Citation

Ackert, Lucy F. and Church, Bryan K. and Jayaraman, Narayanan, Circuit Breakers with Uncertainty About the Presence of Informed Agents: I Know What You Know . . . I Think. Financial Markets, Institutions & Instruments, Vol. 14, No. 3, pp. 135-168, August 2005, Available at SSRN: https://ssrn.com/abstract=773004

Lucy F. Ackert (Contact Author)

Kennesaw State University - Michael J. Coles College of Business ( email )

1000 Chastain Road
Department of Economics and Finance
Kennesaw, GA 30144
United States
770-423-6111 (Phone)
770-499-3209 (Fax)

Bryan K. Church

Georgia Institute of Technology - Accounting Area ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States
404-894-3907 (Phone)
404-894-6030 (Fax)

Narayanan Jayaraman

Georgia Institute of Technology - Scheller College of Business ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States
404-894-4389 (Phone)
404-894-6030 (Fax)

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