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

  • Ackert, Lucy F.
  • Church, Bryan
  • Jayaraman, Narayanan

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.

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Article provided by Elsevier in its journal Journal of Financial Markets.

Volume (Year): 4 (2001)
Issue (Month): 2 (April)
Pages: 185-208

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Handle: RePEc:eee:finmar:v:4:y:2001:i:2:p:185-208
Contact details of provider: Web page: http://www.elsevier.com/locate/finmar

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  18. Ma, C.K. & Rao, R.P. & Sears, R.S., 1988. "Limit Moves And Price Resolution: The Case Of The Treasury Bond Futures Markets," Papers 177, Columbia - Center for Futures Markets.
  19. Gerety, Mason S & Mulherin, J Harold, 1992. " Trading Halts and Market Activity: An Analysis of Volume at the Open and the Close," Journal of Finance, American Finance Association, vol. 47(5), pages 1765-84, December.
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