Skip to Main Content
 

Global Search Box

 
 
 
 

Files

File List


ucin1054125077.pdf (2.83 MB)

ETD Abstract Container

Abstract Header

A MARKET STABILIZATION MECHANISM - CIRCUIT BREAKER: THEORY AND EVIDENCE

YANG, JR-MING JIMMY
http://rave.ohiolink.edu/etdc/view?acc_num=ucin1054125077

Abstract Details

2003, PhD, University of Cincinnati, Business Administration : Finance.
The term "circuit breaker" originates in electrical engineering to describe a pre-set switch that shuts down electrical activity in excess of a system's design capacity. Since late 1988, the New York Stock Exchange has been imposing circuit breaker systems, which mandate trading halts for a stipulated period of time if the Dow Jones Industrial Average moves by more than a certain amount compared to the previous day's close. Besides the U.S., many countries in the world have also imposed circuit breaker systems in an attempt to reduce market volatility. The purpose of this dissertation is to examine the effectiveness of circuit breaker systems in financial markets. In the first chapter, I conduct a thorough review of the literature on circuit breaker systems and provide suggestions for future studies on this issue. The review covers theoretical background, empirical evidence from both stock markets and futures markets, and the related research methodology. The results of an in-depth analysis of current circuit breaker systems in the world are presented in this chapter. There are two different types of circuit breakers: trading halts and price limits. My second chapter is designed to test the performance of price limits empirically using initial public offering (IPO) data. I compare IPOs with their industry-and-size matched seasoned equities to test three hypothesis raised by price-limit opponents. My results represent the performance of price limits for IPOs and can be used to predict the performance of price limits during periods with high information asymmetry. The most popular rationale for imposing price limits is to reduce market overreaction and volatility. To date, the empirical literature does not give a clear answer on whether price limits reduce or induce overreaction. Therefore, I examine trade-to-trade data in an effort to provide insight to the ongoing debate over the relation between price limits and overreaction in chapter three. I test two hypotheses to investigate whether price limits reduce or induce overreaction. Overall, I conclude that price limits induce overreaction when the price is approaching the limit, but they also reduce overreaction when prices hit the limit consecutively.
Dr. Yong H. Kim (Advisor)
164 p.
Economics, Finance
circuit breakers; price limits; volatility; trading activiity; price discovery

Recommended Citations

Citations

  • YANG, J.-M. J. (2003). A MARKET STABILIZATION MECHANISM - CIRCUIT BREAKER: THEORY AND EVIDENCE [Doctoral dissertation, University of Cincinnati]. OhioLINK Electronic Theses and Dissertations Center. http://rave.ohiolink.edu/etdc/view?acc_num=ucin1054125077

    APA Style (7th edition)

  • YANG, JR-MING. A MARKET STABILIZATION MECHANISM - CIRCUIT BREAKER: THEORY AND EVIDENCE. 2003. University of Cincinnati, Doctoral dissertation. OhioLINK Electronic Theses and Dissertations Center, http://rave.ohiolink.edu/etdc/view?acc_num=ucin1054125077.

    MLA Style (8th edition)

  • YANG, JR-MING. "A MARKET STABILIZATION MECHANISM - CIRCUIT BREAKER: THEORY AND EVIDENCE." Doctoral dissertation, University of Cincinnati, 2003. http://rave.ohiolink.edu/etdc/view?acc_num=ucin1054125077

    Chicago Manual of Style (17th edition)

ucin1054125077
1,906
© 2003, all rights reserved.
This open access ETD is published by University of Cincinnati and OhioLINK.