Relative performance of trading halts and price limits: Evidence from the Spanish Stock Exchange

Kim, Yong H.; Yagüe, José; Yang, Jun

doi:10.1016/j.iref.2007.06.003

Cited by 50 publications

(20 citation statements)

References 31 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…We show that design parameters significantly influence the effectiveness of volatility interruptions and highlight that a shorter duration and tighter price ranges support interruptions in achieving their goals. Moreover, our findings are in line with previous literature, i.e., circuit breakers in the form of volatility interruptions are able to reduce volatility (Lee and Kim, 1995;Zimmermann, 2014) but decrease liquidity at the same time (Corwin and Lipson, 2000;Kim et al, 2008).…”

Section: Discussionsupporting

confidence: 93%

“…On the other hand, various studies find no empirical evidence for a reduction in volatility (Bildik and Gülay, 2006;Kim et al, 2008;Phylaktis et al, 1999) or even identify an increase in volatility after the circuit breaker (Chen, 1993;Farag, 2014;Lee et al, 1994). Similarly, Corwin and Lipson (2000) consistently observe a significant increase in volatility following security-specific NYSE trading halts.…”

Section: Theoretical Background and Empirical Findingsmentioning

confidence: 99%

See 1 more Smart Citation

Managing Excess Volatility: Design and Effectiveness of Circuit Breakers

et al. 2017

View full text Add to dashboard Cite

Circuit breakers are volatility safeguards that shall protect markets from extreme price fluctuations, excessive volatility and overreactions. Especially in the context of today's highly automated trading and the large number of transactions conducted by algorithmic and highfrequency trading (HFT) firms, circuit breakers aim at ensuring market stability. Moreover, several flash crash type events, i.e., phases of high volatility and large price swings in very short time spans, have become an increasing phenomenon in recent years highlighting the importance of circuit breakers.Consequently, circuit breakers and their design gained public and regulatory attention, which also led to regulatory initiatives regarding the introduction and the configuration of these mechanisms. While the majority of trading venues has some kind of circuit breaker in place, these safeguards significantly differ in their design, which might be one of the reasons why academic studies come to different conclusions whether circuit breakers are beneficial or not. This paper adds to the literature on circuit breakers by analyzing how different design parameters influence the effectiveness of circuit breakers to calm securities markets during phases of high volatility. For our analysis, we compare volatility interruption mechanisms on two European venues, which differ in relevant design parameters. A volatility interruption is a specific type of circuit breaker that interrupts continuous trading with an unscheduled call auction. Our results show that a shorter duration and narrower price ranges support their effectiveness. The disclosure respectively non-disclosure of triggering thresholds, however, has no effect on the interruption's effectiveness, which might result from the possibility to approximate the thresholds based on tick-by-tick trade data. Furthermore, there is empirical evidence that volatility interruptions triggered by market-wide events are not as effective as interruptions triggered by single-stock events.With our empirical analysis, we show that circuit breakers in the form of volatility interruptions are able to reduce volatility but are also associated with a drop in liquidity. In particular, our results reveal how design parameters such as duration, width of triggering thresholds, and the publication of these thresholds influence the effectiveness of volatility interruptions in reducing volatility and preserving liquidity. These results may serve as a starting point for exchange operators and regulators to review existing circuit breaker designs or to start implementing them AbstractWe investigate different designs of circuit breakers implemented on European trading venues and examine their effectiveness to manage excess volatility and to preserve liquidity. Specifically, we empirically analyze volatility and liquidity around volatility interruptions implemented on the German and Spanish stock market which differ regarding specific design parameters. We find that volatility interruptions in general significantly decrease v...

show abstract

Section: Discussionsupporting

confidence: 93%

Section: Theoretical Background and Empirical Findingsmentioning

confidence: 99%

Managing Excess Volatility: Design and Effectiveness of Circuit Breakers

et al. 2017

View full text Add to dashboard Cite

show abstract

“…The NT$ symbol denotes the unit of Taiwanese currency. 5 For conceptual differences and similarities between price limits and trading halts, as well as empirical evidence of their relative performance, see Kim et al (2008).…”

Section: Institutional Backgroundmentioning

confidence: 99%

The magnet effect of price limits: A logit approach

Hsieh

Kim

Yang

2009

Journal of Empirical Finance

Self Cite

View full text Add to dashboard Cite

“…There are empirical results that support the positive effect of market‐wide trading halts. Kim, Yague, and Yang () find that both volume and bid‐ask spreads are unaffected after a halt, yet both increase under a price limit rule. Two papers find that trade halts are necessary to control for severe asymmetric information imbalances (see Bhattacharya & Spiegel, ; Edelen & Gervais, ).…”

Section: Literature Reviewmentioning

confidence: 99%

Programs trades and trade regulation: An evidence of the Korean securities market

Eom

Jordan²,

Lee

et al. 2019

Journal of Futures Markets

View full text Add to dashboard Cite

This study addresses the effects of program trade regulation during large market moves. To address this issue, we analyze the effect of sidecars (halts that only affect program trades) on trade imbalance using Korean intraday data. We find that sidecars, as currently designed to halt all program trades, are not effective at controlling trade imbalance around volatile markets. Resolution of trade imbalance is more effective when program trade is unrestricted. Program trade, at least a subset, provides liquidity when it is at a premium. We conclude that current sidecars should be more carefully crafted as some program trades are market stabilizing.

show abstract

Relative performance of trading halts and price limits: Evidence from the Spanish Stock Exchange

Cited by 50 publications

References 31 publications

Managing Excess Volatility: Design and Effectiveness of Circuit Breakers

Managing Excess Volatility: Design and Effectiveness of Circuit Breakers

The magnet effect of price limits: A logit approach

Programs trades and trade regulation: An evidence of the Korean securities market

Contact Info

Product

Resources

About