DO CIRCUIT BREAKERS IMPEDE TRADING BEHAVIOR? A STUDY IN CHINESE FINANCIAL MARKET

Kun Li ()
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Kun Li: Business School, Beijing Normal University, Houzhulou Building, 19 Xinjiekouwai Street, Beijing 100875, P. R. China

The Singapore Economic Review (SER), 2019, vol. 64, issue 05, 1-18

Abstract: As the most influential regulation in 2016, China launched circuit breakers in the financial markets. However, the circuit breaker mechanism was implemented for only four days and then suspended. Many criticisms then stated that circuit breakers impeded trading behavior in Chinese financial markets. This study explores this short-life circuit breaker mechanism in China, and examines whether circuit breakers impede trading behavior in Chinese financial markets as many criticisms stated. We use an intraday dataset and investigate the circuit breakers. Contrary to those criticisms, we find that circuit breakers are not easily reachable and have no “magnet effect” between two thresholds of breakers. We also find that without protection of circuit breakers, potential large market fluctuations will have negative impacts on individual stocks’ liquidity and value. As the major contribution, our study indicates that Chinese financial markets still need a circuit breaker mechanism to protect investors’ benefits and maintain the market liquidity and stability.

Keywords: Circuit breakers; magnet effect; Chinese financial market; high-frequency data (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (1)

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DOI: 10.1142/S0217590819500565

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