Open AccessDO CIRCUIT BREAKERS IMPEDE TRADING BEHAVIOR? A STUDY IN CHINESE FINANCIAL MARKET
Author(s) -
Kun Li
Publication year - 2019
Publication title -
singapore economic review/the singapore economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.275
H-Index - 17
eISSN - 1793-6837
pISSN - 0217-5908
DOI - 10.1142/s0217590819500565
Subject(s) - circuit breaker , market liquidity , china , financial market , business , sulfur hexafluoride circuit breaker , finance , economics , monetary economics , financial system , short circuit , electrical engineering , law , engineering , arc fault circuit interrupter , voltage , political science
As the most influential regulation in 2016, China launched circuit breakers in the financial markets. However, the circuit breaker mechanism was implemented for only four days and then suspended. Many criticisms then stated that circuit breakers impeded trading behavior in Chinese financial markets. This study explores this short-life circuit breaker mechanism in China, and examines whether circuit breakers impede trading behavior in Chinese financial markets as many criticisms stated. We use an intraday dataset and investigate the circuit breakers. Contrary to those criticisms, we find that circuit breakers are not easily reachable and have no “magnet effect” between two thresholds of breakers. We also find that without protection of circuit breakers, potential large market fluctuations will have negative impacts on individual stocks’ liquidity and value. As the major contribution, our study indicates that Chinese financial markets still need a circuit breaker mechanism to protect investors’ benefits and maintain the market liquidity and stability.