Circuit breakers and stock market volatility

Santoni, G.J.; Liu, Tung

doi:10.1002/fut.3990130304

Cited by 39 publications

(20 citation statements)

References 25 publications

(18 reference statements)

Supporting

Mentioning

Contrasting

Order By: Relevance

“…117 from conclusive. While some researchers conclude that these tools reduce market volatility [Ma et al, 1989a[Ma et al, , 1989b, others have found that volatility is unaffected [Santoni and Liu, 1993] or actually increases [Kuhn et al, 1990;McMillan, 1990]. The purpose of this paper is to lend insight into the effects of changes in the rules governing the operation of circuit breakers on the market's expectation of future volatility.…”

Section: Introductionmentioning

confidence: 92%

“…Ma et al [ 1989a] examine the behavior of futures prices around price limit moves for treasury bond futures markets and four commodity futures markets [Ma et al, 1989b] and conclude that volatility is lower in post-limit sample periods. Santoni and Liu [1993] examine the effect of the NYSE's Rule 80A on stock price volatility. Using a generalized autoregressive conditional heteroskedastic model for daily returns, Santoni and Liu [1993] test for parameter changes following the adoption and revision of circuit breaker rules.…”

Section: The Role Of Exchange Controls and Evidence Regarding Their Ementioning

confidence: 99%

“…Santoni and Liu [1993] examine the effect of the NYSE's Rule 80A on stock price volatility. Using a generalized autoregressive conditional heteroskedastic model for daily returns, Santoni and Liu [1993] test for parameter changes following the adoption and revision of circuit breaker rules. In addition, intraday data were used to examine the effect on the volatility of intraday returns when circuit breakers were triggered.…”

Section: The Role Of Exchange Controls and Evidence Regarding Their Ementioning

confidence: 99%

See 2 more Smart Citations

The effect of circuit breakers on expected volatility: Tests using implied volatilities

Ackert

Hao

Hunter

1997

Atlantic Economic Journal

View full text Add to dashboard Cite

Section: Introductionmentioning

confidence: 92%

Section: The Role Of Exchange Controls and Evidence Regarding Their Ementioning

confidence: 99%

Section: The Role Of Exchange Controls and Evidence Regarding Their Ementioning

confidence: 99%

See 1 more Smart Citation

The effect of circuit breakers on expected volatility: Tests using implied volatilities

Ackert

Hao

Hunter

1997

Atlantic Economic Journal

View full text Add to dashboard Cite

“…Lee, Ready and Seguin (1994) find volatility and volume increase on day following trading halts, and this evidence supports the spillover hypothesis where price limits may cause volatility to spread out over a longer period of time because limits prevent large one-day price changes and immediate price corrections. Santoni and Liu (1993) test for changes in volatility surrounding the adoption of the circuit breakers using an RCH model. Using data through May 1991, they find no significant effects.…”

Section: Circuit Breakers Around the Worldmentioning

confidence: 99%

Circuit breakers: Development of testable hypothesis

Anup¹,

Chowdhur²,

Mohammed³

et al. 2010

CBR

View full text Add to dashboard Cite

Abstract:In October 1996, The Dhaka Stock Exchange (DSE) adopted trading halts for individual stocks, collectively known as "circuit breakers", to reduce the stock market volatility. This paper reviews the existing circuit breakers literature and developed five hypothesis-"Magnet Effect", "Cool off-Heating (C-H) Effect", "Information Hypothesis", "Volatility Spillover Hypothesis" and "Trading Interferences Hypothesis"-which could be tested empirically not only in the Dhaka Stock Exchange but any stock exchanges around the world. This paper also suggests most appropriate econometric models for empirical testing. GARCH for inter day data and Event Study methodology for intra day data. Moreover, to test the robustness non-parametric tests need to use along with parametric one. Considering the stock market bubbles in 1996, it has been found that it was optimal for the regulators to adopt this trading halt, but not for the market. It failed to protect the market. However, this might be the consequences of misconceptions about the purpose and effectiveness of circuit breakers. Despite many arguments contrary to this mechanism and absence of any conclusive empirical evidence for a fragile stock exchange like DSE, it may be useful sometimes to replace the "invisible hand of the marketplace" with the "visible hand of the market regulators".

show abstract

“…There have been several previous empirical studies of the effects of circuit breakers, including those of Ma, Rao and Sears (1989a,b), Santoni and Liu (1993), and Booth and Broussard (1998), using data from US bond and commodity markets and the NYSE respectively. The Ma et al and Santoni and Liu studies examine the impact of circuit breakers on market volatility, using in the former cases measures of volatility based on daily closing prices or cumulative average returns in one-minute interval data, and in the latter ARCH models of the daily conditional volatility.…”

mentioning

confidence: 99%