Ex-post effects of circuit breakers in crisis and calm markets: long horizon evidence from wide-band Malaysian price limits
Purpose – Despite regulatory claims of straitening volatility and preventing crashes, evidences on circuit breakers’ ability to achieve so are nonconclusive. While previous scholars studies general performances of circuit breakers, the authors examine whether Malaysian price limits aggravate volat...
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| Main Authors: | , |
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| Format: | Article |
| Language: | English English English |
| Published: |
Emerald Group Publishing Ltd.
2020
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| Subjects: | |
| Online Access: | http://irep.iium.edu.my/80185/1/80185_Ex-post%20effects%20of%20circuit%20breakers.pdf http://irep.iium.edu.my/80185/2/80185_Ex-post%20effects%20of%20circuit%20breakers_SCOPUS.pdf http://irep.iium.edu.my/80185/3/80185_Ex-post%20effects%20of%20circuit%20breakers_WOS.pdf http://irep.iium.edu.my/80185/ https://www.emerald.com/insight/content/doi/10.1108/JES-06-2018-0226/full/pdf |
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| Institution: | Universiti Islam Antarabangsa Malaysia |
| Language: | English English English |
| Summary: | Purpose – Despite regulatory claims of straitening volatility and preventing crashes, evidences on circuit
breakers’ ability to achieve so are nonconclusive. While previous scholars studies general performances of
circuit breakers, the authors examine whether Malaysian price limits aggravate volatility, impede price
discovery, and interfere with trading activities in both tranquil and stressful periods.
Design/methodology/approach – The study uses a combination of parametric and nonparametric
techniques consistent with Kim and Rhee (1997) to examine the major ex-post hypotheses in circuit breaker
research.
Findings – For calm markets, the authors find significant success of upper limits in tempering volatility with
low trading interference. Lower limits show mixed results. Conversely, in crisis markets limits fare poorly in
nearly all aspects, particularly for lower limits.
Practical implications – Ramifications of the paper’s findings are discussed through highlighting the
asymmetric nature of price limits’ ex-post effects. The paper also contributes to regulatory debate surrounding
the quest for an optimal price limit.
Originality/value – The paper is the first of its kind in documenting long-horizon evidence of ex-post effects
of a wide-band price limit. Moreover, the paper is unique in its approach in bifurcating circuit breaker
performance along the line of market stability periods. |
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