A microstructure study of circuit breakers in the Chinese stock markets

Steven Shuye Wang, Kuan Xu and Hao Zhang

Pacific-Basin Finance Journal, 2019, vol. 57, issue C

Abstract: Based on rare policy changes in the Chinese stock market in January 2016, we study the impacts of market-wide circuit breakers on market microstructure. To test if market-wide circuit breakers have the “cooling effect” and the magnet effect, we use high frequency transactions and limit order book data and Lasso IV models for endogenous market microstructure variables and exogenous policy variables based on a novel identification strategy. We find that market-wide circuit breakers have no “cooling effect” in decelerating falling prices (or returns) or reducing market volatility and order imbalance. Their presence does not affect bid-ask spreads but does reduces the large-, mid-, and small-sized trades in volume and trades. We also find that market-wide circuit breakers indeed induce significant magnet effects on stock returns, order imbalance, quote imbalance, and trades of various sizes.

Keywords: Circuit breakers; Theme Keywords: Circuit breakers. (search for similar items in EconPapers)
JEL-codes: G10 G15 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (7)

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Working Paper: A Microstructure Study of Circuit Breakers in the Chinese Stock Markets (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:57:y:2019:i:c:s0927538x1930068x

DOI: 10.1016/j.pacfin.2019.101174

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