The Cross-Sectional Spillovers of Single Stock Circuit Breakers
James Brugler, Oliver Linton, Joseph Noss, Lucas Pedace
Market Microstructure and Liquidity | World Scientific Publ Co Pte Ltd | Published : 2018
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. In the two-month period we study, characterized by a relatively volatile trading environment, we find that circuit breakers lead to a significant improv..View full abstract
We would like to thank Lucy Ackert, Jonathan Brogaard, Carole Comerton-Forde, Terry Hendershott, Andrew Patton, Jon Relleen, Rhiannon Sowerbutts and Avanidhar Subrahmanyam for helpful comments as well as seminar participants and discussants at the Keynes Fund for Applied Economics 1st Research Day, the Summer Seminar Series at the Systemic Risk Centre, London School of Economics, the Lunchtime Seminar Series at the Financial Stability Directorate, Bank of England and the Australasian Finance and Banking Conference. We also wish to thank the London Stock Exchange for providing the dataset and the Cambridge-INET Institute and the Keynes Fund for financial support.