Title

An Experimental Study of Circuit Breakers: The Effects of Mandated Market Closures and Temporary Halts on Market Behavior

Department

Economics, Finance, & Quantitative Analysis

Document Type

Article

Publication Date

4-2001

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. We find that 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 price behavior is information. By comparison, trading activity is significantly affected by the presence of a circuit breaker. Market participants advance trades when a trading interruption is imminent.