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/ http://irep.iium.edu.my/73403/ http://irep.iium.edu.my/73403/ http://irep.iium.edu.my/73403/1/Sifat%20and%20Mohamad%202018%20%28IJFE%29%20-%20Published%20version.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

id	iium-73403
recordtype	eprints
spelling	iium-734032019-07-22T01:46:46Z 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/73403/1/Sifat%20and%20Mohamad%202018%20%28IJFE%29%20-%20Published%20version.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
repository_type	Digital Repository
institution_category	Local University
institution	International Islamic University Malaysia
building	IIUM Repository
collection	Online Access
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/ http://irep.iium.edu.my/73403/ http://irep.iium.edu.my/73403/ http://irep.iium.edu.my/73403/1/Sifat%20and%20Mohamad%202018%20%28IJFE%29%20-%20Published%20version.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
first_indexed	2023-09-18T21:44:04Z
last_indexed	2023-09-18T21:44:04Z
_version_	1777413332395884544

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

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