Managing excess volatility: Design and effectiveness of circuit breakers

Benjamin Clapham, Peter Gomber, Martin Haferkorn and Sven Panz

No 195, SAFE Working Paper Series from Leibniz Institute for Financial Research SAFE

Abstract: We investigate different designs of circuit breakers implemented on European trading venues and examine their effectiveness to manage excess volatility and to preserve liquidity. Specifically, we empirically analyze volatility and liquidity around volatility interruptions implemented on the German and Spanish stock market which differ regarding specific design parameters. We find that volatility interruptions in general significantly decrease volatility in the post interruption phase. Unfortunately, this decrease in volatility comes at the cost of decreased liquidity. Regarding design parameters, we find tighter price ranges and shorter durations to support volatility interruptions in achieving their goals.

Keywords: Circuit Breaker; Volatility Interruption; Volatility; Liquidity; Market Design (search for similar items in EconPapers)
JEL-codes: G14 G15 G18 G28 (search for similar items in EconPapers)
Date: 2017
New Economics Papers: this item is included in nep-mst
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:safewp:195

DOI: 10.2139/ssrn.2910977

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