Coordination of circuit breakers? Volume migration and volatility spillover in fragmented markets
- 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.
Author: | Benjamin ClaphamORCiDGND, Peter GomberORCiDGND, Sven Panz |
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URN: | urn:nbn:de:hebis:30:3-456440 |
URL: | https://ssrn.com/abstract=2906719 |
DOI: | https://doi.org/10.2139/ssrn.2906719 |
Parent Title (English): | SAFE working paper series ; No. 196 |
Series (Serial Number): | SAFE working paper (196) |
Publisher: | SAFE |
Place of publication: | Frankfurt am Main |
Document Type: | Working Paper |
Language: | English |
Year of Completion: | 2018 |
Year of first Publication: | 2018 |
Publishing Institution: | Universitätsbibliothek Johann Christian Senckenberg |
Release Date: | 2018/02/13 |
Tag: | Circuit Breaker; High-Frequency Trading; Liquidity; Market Fragmentation; Regulation; Stock Market; Volatility Interruption |
Issue: | January 27, 2017 |
Page Number: | 38 |
HeBIS-PPN: | 426539273 |
Institutes: | Wirtschaftswissenschaften / Wirtschaftswissenschaften |
Wissenschaftliche Zentren und koordinierte Programme / House of Finance (HoF) | |
Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS) | |
Wissenschaftliche Zentren und koordinierte Programme / Sustainable Architecture for Finance in Europe (SAFE) | |
Dewey Decimal Classification: | 3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft |
Sammlungen: | Universitätspublikationen |
Licence (German): | Deutsches Urheberrecht |