Abstract
The market-wide circuit breaker mechanism was introduced in India on 02 July 2001 with the intent of restraining intense movements in the market. It is a financial instrument that works to prevent both overabundant losses as well as speculative gains within a short span of time. The market-wide circuit breaker is calculated on the basis of the index movements. The circuit breaker system has not undergone amendments to the different levels at which it gets triggered. This is the reasoning for the study, which aims to investigate whether there is a need for a revision of the mechanism. An exploratory study of the equity markets utilizing an Event Study methodology reveals that circuit breakers are definitely useful towards restraining volatility. The study also shows that investors tend to panic more when the markets show intense movements in the downward direction than in the upward direction.
References
- Chen H, Petukhov A, Wang J, Xing H. The dark side of circuit breakers. The Journal of Finance. 2024 Apr;79(2):1405-55. https://doi.org/10.1111/jofi.13310
- Baker HK, Kiymaz H. Market Microstructure. Market Microstructure in Emerging and Developed Markets: Price Discovery, Information Flows, and Transaction Costs. 2013 Aug 16:1-6. https://doi.org/10.1002/9781118681145.ch1
- Linton O, Brugler J. Single stock circuit breakers on the London Stock Exchange: do they improve subsequent market quality? Econstor (Econstor). 2014 Feb 20; https://doi.org/10.1920/wp.cem.2014.0714
- Nee C. Understanding expertise in burglars: From pre-conscious scanning to action and beyond. Aggression and Violent Behavior. 2015 Jan 1;20:53-61. https://doi.org/10.1016/j.avb.2014.12.006
- Ameer I, Halinen A. Moving beyond ethical decision-making: A practice-based view to study unethical sales behavior. Journal of Personal Selling & Sales Management. 2019 Apr 3;39(2):103-22. https://doi.org/10.1080/08853134.2018.1544077
- Charles, C.A. and Kulkarni, M.S., 2022. Circuit Breaker Effects on Market Players Psychology and Behavior. Cardiometry, (23), pp.244-254. https://doi.org/10.18137/cardiometry.2022.23.244254
- Chen S, Boucher HC, Tapias MP. The relational self revealed: integrative conceptualization and implications for interpersonal life. Psychological bulletin. 2006 Mar;132(2):151. https://doi.org/10.1037/0033-2909.132.2.151
- Wong KM, Kong XW, Li M. The magnet effect of circuit breakers and its interactions with price limits. Pacific-Basin Finance Journal. 2020 Jun 1;61:101325. https://doi.org/10.1016/j.pacfin.2020.101325
- Sifat IM, Mohamad A. Circuit breakers as market stability levers: A survey of research, praxis, and challenges. International Journal of Finance & Economics. 2019 Jul;24(3):1130-69. 18 https://doi.org/10.1002/ijfe.1709
- Chari LS, Panda P, Korivi SR. Impact of Market-Wide Circuit-Breaker on Trading Activity and Volatility: Empirical Evidence from Indian Markets. Prajnan. 2017 Apr 1;46(1):37-53.
- Kobayashi S, Hashimoto T. Benefits and limits of circuit breaker: Institutional design using artificial futures market. Evolutionary and Institutional Economics Review. 2011 Mar;7:355-72. http://dx.doi.org/10.14441/eier.7.355
- Brugler J, Linton O. Single stock circuit breakers on the London Stock Exchange: do they improve subsequent market quality?.cemmap working paper; 2014. https://hdl.handle.net/10419/97379
- Stoll HR. Electronic trading in stock markets. Journal of Economic Perspectives. 2006 Mar 1;20(1):153-74. https://doi.org/10.1257/089533006776526067
