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The cross-sectional spillovers of single stock circuit breakers

Author

Listed:
  • Brugler, James

    (University of Melbourne)

  • Linton, Oliver

    (University of Cambridge)

  • Noss, Joseph

    (Financial Stability Board)

  • Pedace, Lucas

    (Bank of England)

Abstract

This paper uses transaction data to estimate how single stock circuit breakers on the London Stock Exchange affect other stocks that remain in continuous trading. This ‘spillover’ effect is estimated by calculating the effect of a trading halt on the market quality of stocks that remain in continuous trading and comparing this with the effect of a stock whose absolute returns are of a magnitude nearly sufficient to trigger a trading halt but do not do so. Market quality is measured using a combination of trading costs, volatility and volume. We find that circuit breakers lead to a significant improvement in the liquidity, and reduction in the volatility, of stocks that remain in continuous trading. This might suggest that — at least over the period covered by our data — single stock circuit breakers play an important role in reducing the spillover of poor market quality across stocks.

Suggested Citation

  • Brugler, James & Linton, Oliver & Noss, Joseph & Pedace, Lucas, 2018. "The cross-sectional spillovers of single stock circuit breakers," Bank of England working papers 759, Bank of England.
    • Handle: RePEc:boe:boeewp:0759
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    References listed on IDEAS

    as
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    Cited by:

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    3. Shan Lu & Jichang Zhao & Huiwen Wang, 2019. "The emergence of critical stocks in market crash," Papers 1908.07244, arXiv.org.

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    More about this item

    Keywords

    Circuit breakers; market microstructure; market quality;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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