The cross-sectional spillovers of single stock circuit breakers

James Brugler (james.brugler@unimelb.edu.au), Oliver Linton, Joseph Noss (joseph.noss@fsb.org) and Lucas Pedace (lucas.pedace@bankofengland.co.uk)
Additional contact information
James Brugler: University of Melbourne
Joseph Noss: Financial Stability Board
Lucas Pedace: Bank of England, Postal: Bank of England, Threadneedle Street, London, EC2R 8AH

No 759, Bank of England working papers from Bank of England

Abstract: This paper uses transaction data to estimate how single stock circuit breakers on the London Stock Exchange affect other stocks that remain in continuous trading. This ‘spillover’ effect is estimated by calculating the effect of a trading halt on the market quality of stocks that remain in continuous trading and comparing this with the effect of a stock whose absolute returns are of a magnitude nearly sufficient to trigger a trading halt but do not do so. Market quality is measured using a combination of trading costs, volatility and volume. We find that circuit breakers lead to a significant improvement in the liquidity, and reduction in the volatility, of stocks that remain in continuous trading. This might suggest that — at least over the period covered by our data — single stock circuit breakers play an important role in reducing the spillover of poor market quality across stocks.

Keywords: Circuit breakers; market microstructure; market quality (search for similar items in EconPapers)
JEL-codes: G12 G14 G15 G18 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2018-10-12
New Economics Papers: this item is included in nep-fmk and nep-mst
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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