An experimental study of circuit breakers: the effects of mandated market closures and temporary halts on market behavior

Lucy Ackert, Bryan K. Church and Narayanan Jayaraman

No 99-1, FRB Atlanta Working Paper from Federal Reserve Bank of Atlanta

Abstract: This paper analyzes the effect of circuit breakers on price behavior, trading volume, and profit-making ability in a market setting. We conduct nine experimental asset markets to compare behavior across three regulatory regimes: market closure, temporary halt, and no interruption. The presence of a circuit breaker rule does not affect the magnitude of the absolute deviation in price from fundamental value or trading profit. The primary driver of behavior is information asymmetry in the market. By comparison, trading activity is significantly affected by the presence of a circuit breaker. Mandated market closures cause market participants to advance trades.

Keywords: Financial markets; Flow of funds; Stock market (search for similar items in EconPapers)
Date: 1999
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Journal Article: An experimental study of circuit breakers: The effects of mandated market closures and temporary halts on market behavior (2001)
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