An Empirical Analysis On The Relationship Between Circuit Breaker And Volatility

In order to stabilize the financial market,the China Securities Regulatory Commission officially implemented the index circuit breakers on the Shanghai Stock Exchange,the Shenzhen Stock Exchange and the China Financial Futures Exchange on January 1,2016.However,on the first trading day and the fourth trading day after the launch of the circuit breakers.The circuit breakers were triggered successively and frequently.Under the pressure of public opinion and the public,the three exchanges were jointly announced on the night of January 7,2016.It was decided to suspend the implementation of the index circuit breakers on the following day.China's implementation of the circuit breakers is a good intention,but why it did not achieve the expected results,this is the topic that wants to explore for this study.Through the concept of event study method,this study redefines the abnormal volatility and cumulative abnormal volatility of the financial market.We quantify the impact of the circuit breakers on a new benchmark to assess the impact time and amplitude of the circuit breakers,so that the impact of the circuit breakers on the financial market has a clearer outline.This study collects the main stock indices,which includes markets such as Japan,UK,Korea,Singapore,the United States and China.These markets have been implemented circuit breakers.We calculate the average abnormal volatility and average cumulative abnormal volatility of these indices and test it whether significantly different from zero to evaluate the impact of circuit breakers and explore whether have significant evidence in the data to support our find.This study measures the impact of the circuit breakers with a new benchmark,and finds that most of the market have positive abnormal volatility,but not necessarily significant before the circuit breakers is triggered.The significant abnormal volatility of each market after the circuit breakers is triggered will last for 1 to 9 days.In this study,the significant cumulative volatility is used as the measure of the impact of the circuit breakers on market volatility.In our empirical study can be found most of the market before and after circuit breakers has the significant cumulative abnormal volatility.Therefore,periodic observations of abnormal volatility and cumulative abnormal volatility can provide early warning effects on the occurrence of the circuit breakers,so as to provide relevant authorities with relevant supporting measures.In the empirical study,we found the Chinese market will have magnet effect in the circuit breakers will triggered,and the implementation of the circuit breakers market fully reflects the impact of the information will be shorter than the implementation of the price limit market.