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Circuit breakers as market stability levers: a survey of research, praxis, and challenges

Circuit breaker, an automated regulatory instrument employed to deter panic, temper volatility, and prevent crashes, is controversial in financial markets. Proponents claim it provides a propitious time out when price levels are stressed and persuades traders to make rational trading decisions. Oppo...

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Main Authors: Sifat, Imtiaz Mohammad, Mohamad, Azhar
Format: Article
Language:English
English
English
Published: Wiley 2019
Subjects:
HG4501 Stocks, investment, speculation
Online Access:http://irep.iium.edu.my/73403/19/73403_Circuit%20breakers%20as%20market%20stability%20levers_article%20for%20myra.pdf
http://irep.iium.edu.my/73403/7/73403_Circuit%20breakers%20as%20market%20stability%20levers_SCOPUS.pdf
http://irep.iium.edu.my/73403/8/73403_Circuit%20breakers%20as%20market%20stability%20levers_WOS.pdf
http://irep.iium.edu.my/73403/
https://onlinelibrary.wiley.com/doi/10.1002/ijfe.1709
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spelling my.iium.irep.734032020-04-04T15:58:30Z http://irep.iium.edu.my/73403/ Circuit breakers as market stability levers: a survey of research, praxis, and challenges Sifat, Imtiaz Mohammad Mohamad, Azhar HG4501 Stocks, investment, speculation Circuit breaker, an automated regulatory instrument employed to deter panic, temper volatility, and prevent crashes, is controversial in financial markets. Proponents claim it provides a propitious time out when price levels are stressed and persuades traders to make rational trading decisions. Opponents demur its potency, dubbing it a barrier to laissez‐faire price discovery process. Since conceptualization in 1970s and practice from 1980s, researchers focused mostly on its ability to allay panic, interference in trading, volatility transmission, prospect of self‐fulfilling prophecy through gravitational pull towards itself, and delayed dissemination of information. Though financial economists are forked on circuit breakers' usefulness, they are a clear favourite among regulators, who downplay the reliability of anti‐circuit breaker findings citing, inter alia, suspect methodology, and lack of statistical power. In the backdrop of 2007–2008 Crisis and 2010 Flash Crash, the drumbeats for more regulatory intervention in markets grew louder. Hence, it is unlikely that intervening mechanism such as circuit breakers will ebb. But are circuit breakers worth it? This paper synthesizes three decades of theoretical and empirical works, underlines the limitations, issues, and methodological shortcomings undermining findings, attempts to explain regulatory rationale, and provides direction for future research in an increasingly complex market climate Wiley 2019-01-01 Article PeerReviewed application/pdf en http://irep.iium.edu.my/73403/19/73403_Circuit%20breakers%20as%20market%20stability%20levers_article%20for%20myra.pdf application/pdf en http://irep.iium.edu.my/73403/7/73403_Circuit%20breakers%20as%20market%20stability%20levers_SCOPUS.pdf application/pdf en http://irep.iium.edu.my/73403/8/73403_Circuit%20breakers%20as%20market%20stability%20levers_WOS.pdf Sifat, Imtiaz Mohammad and Mohamad, Azhar (2019) Circuit breakers as market stability levers: a survey of research, praxis, and challenges. International Journal of Finance and Economics, 24 (3). pp. 1130-1169. ISSN 1076-9307 E-ISSN 1099-1158 https://onlinelibrary.wiley.com/doi/10.1002/ijfe.1709 10.1002/ijfe.1709
institution Universiti Islam Antarabangsa Malaysia
building IIUM Library
collection Institutional Repository
continent Asia
country Malaysia
content_provider International Islamic University Malaysia
content_source IIUM Repository (IREP)
url_provider http://irep.iium.edu.my/
language English
English
English
topic HG4501 Stocks, investment, speculation
spellingShingle HG4501 Stocks, investment, speculation
Sifat, Imtiaz Mohammad
Mohamad, Azhar
Circuit breakers as market stability levers: a survey of research, praxis, and challenges
description Circuit breaker, an automated regulatory instrument employed to deter panic, temper volatility, and prevent crashes, is controversial in financial markets. Proponents claim it provides a propitious time out when price levels are stressed and persuades traders to make rational trading decisions. Opponents demur its potency, dubbing it a barrier to laissez‐faire price discovery process. Since conceptualization in 1970s and practice from 1980s, researchers focused mostly on its ability to allay panic, interference in trading, volatility transmission, prospect of self‐fulfilling prophecy through gravitational pull towards itself, and delayed dissemination of information. Though financial economists are forked on circuit breakers' usefulness, they are a clear favourite among regulators, who downplay the reliability of anti‐circuit breaker findings citing, inter alia, suspect methodology, and lack of statistical power. In the backdrop of 2007–2008 Crisis and 2010 Flash Crash, the drumbeats for more regulatory intervention in markets grew louder. Hence, it is unlikely that intervening mechanism such as circuit breakers will ebb. But are circuit breakers worth it? This paper synthesizes three decades of theoretical and empirical works, underlines the limitations, issues, and methodological shortcomings undermining findings, attempts to explain regulatory rationale, and provides direction for future research in an increasingly complex market climate
format Article
author Sifat, Imtiaz Mohammad
Mohamad, Azhar
author_facet Sifat, Imtiaz Mohammad
Mohamad, Azhar
author_sort Sifat, Imtiaz Mohammad
title Circuit breakers as market stability levers: a survey of research, praxis, and challenges
title_short Circuit breakers as market stability levers: a survey of research, praxis, and challenges
title_full Circuit breakers as market stability levers: a survey of research, praxis, and challenges
title_fullStr Circuit breakers as market stability levers: a survey of research, praxis, and challenges
title_full_unstemmed Circuit breakers as market stability levers: a survey of research, praxis, and challenges
title_sort circuit breakers as market stability levers: a survey of research, praxis, and challenges
publisher Wiley
publishDate 2019
url http://irep.iium.edu.my/73403/19/73403_Circuit%20breakers%20as%20market%20stability%20levers_article%20for%20myra.pdf
http://irep.iium.edu.my/73403/7/73403_Circuit%20breakers%20as%20market%20stability%20levers_SCOPUS.pdf
http://irep.iium.edu.my/73403/8/73403_Circuit%20breakers%20as%20market%20stability%20levers_WOS.pdf
http://irep.iium.edu.my/73403/
https://onlinelibrary.wiley.com/doi/10.1002/ijfe.1709
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score 13.211869

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