Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/174903
Authors: 
Clapham, Benjamin
Gomber, Peter
Panz, Sven
Year of Publication: 
2017
Series/Report no.: 
SAFE Working Paper 196
Abstract: 
We study circuit breakers in a fragmented, multi-market environment and investigate whether a coordination of circuit breakers is necessary to ensure their effectiveness. In doing so, we analyze 2,337 volatility interruptions on Deutsche Boerse and research whether a volume migration and an accompanying volatility spillover to alternative venues that continue trading can be observed. Different to prevailing theoretical rationale, trading volume on alternative venues significantly decreases during circuit breakers on the main market and we do not find any evidence for volatility spillover. Moreover, we show that the market share of the main market increases sharply during a circuit breaker. Surprisingly, this is amplified with increasing levels of fragmentation. We identify high-frequency trading as a major reason for the vanishing trading activity on the alternative venues and give empirical evidence that a coordination of circuit breakers is not essential for their effectiveness as long as market participants shift to the dominant venue during market stress.
Subjects: 
Circuit Breaker
Volatility Interruption
Market Fragmentation
High-Frequency Trading
Stock Market
Regulation
Liquidity
JEL: 
G14
G15
G18
G28
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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