The Dark Side of Circuit Breakers

• 成果类型: Article
• 署名作者: Chen, Hui; Petukhov, Anton; Wang, Jiang; Xing, Hao
• 署名单位: National Bureau of Economic Research; Boston University; Massachusetts Institute of Technology (MIT)
• 刊物名称: JOURNAL OF FINANCE
• ISSN/ISSBN: 0022-1082
• DOI: 10.1111/jofi.13310
• 发表日期: 2024
• 页码: 1405-1455
• 关键词: Market volatility; PRICE RESOLUTION; performance; liquidity; leverage; crashes; LIMITS

摘要

Market-wide circuit breakers are trading halts aimed at stabilizing the market during dramatic price declines. Using an intertemporal equilibrium model, we show that a circuit breaker significantly alters market dynamics and affects investor welfare. As the market approaches the circuit breaker, price volatility rises drastically, accelerating the chance of triggering the circuit breaker-the so-called magnet effect, returns exhibit increasing negative skewness, and trading activity spikes up. Our empirical analysis supports the model's predictions. Circuit breakers can affect overall welfare negatively or positively, depending on the relative significance of investors' trading motives for risk sharing versus irrational speculation.