Ex-Post Effects of Circuit Breakers in Crisis and Calm Markets: Long Horizon Evidence from Wide-Band Malaysian Price Limits
Despite regulatory claims of straitening volatility and preventing crashes, evidences on circuit breakers’ ability to achieve so are non-conclusive. While previous scholars study general performances of circuit breakers, we examine whether Malaysian price limits aggravate volatility, impede price discovery, and interfere with trading activities in both tranquil and stressufl periods. For calm markets, we find significant success of upper limits in tempering volatility with low trading interference. Lowe limits show mixed results. Conversely, in crisis markets limits fare poorly in nearly all aspects, particularly for lower limits. We highlight implications of our findings for stakeholders and suggest future research avenues.
Under review at Journal of Economic Studies
JEL Classifications: D43, D47, D53
Keywords: Price Limits, Trading Halts, Malaysia, Financial Crisis, Circuit Breakers, Emerging Markets