Circuit Breaker Mechanism,Industry Influence And Market Stabilization Strategy

Before 2016,China’s stock market did not set up any circuit breaker mechanism,but a price limit system to restrict the volatility of individual stock prices.In 2015,China’s stock market experienced a period of severe turbulence,with nearly one thousand stocks falling by the daily limit for several days.In order to maintain market stability and reduce losses of institutional and individual investors,China’s stock market implemented circuit breaker mechanism on January 4,2016.The system sets circuit breaker thresholds of 5 percent and 7 percent,which will be triggered by a 15-minute market shutdown and an all-day trading halt,respectively.The circuit breaker threshold was triggered on the first and fourth trading day after its implementation.After many considerations,the circuit breaker was abolished after only four days of implementation.In the four trading days,the combined market value of China’s Shanghai and Shenzhen stock markets had fallen by about7.4 trillion yuan,at a huge cost.Both China’s economic development and the development of the stock market are inseparable from the construction of the system.Although the circuit breaker mechanism has been abolished,the research on the policy effect of the circuit breaker mechanism still has important theoretical and practical significance.This article combed the related research of circuit breaker mechanism,the securities market industry influence and the stability research of the securities market,the three aspects of the literature and the literature review,it introduced the effect,generation and development of the circuit breaker mechanism,and the relation withthe stability of the market,compared the circuit breaker mechanism in the domestic and foreign development present situation,on the basis of the theory summarized the regression discontinuity and GARCH model the effect of two kinds of circuit breaker validation method.Firstly,the basic statistical description of industry volatility is carried out,and then the industrial impact of circuit breaker mechanism is analyzed based on the results of in-sample fitting.After that,the basic statistical description and data validity test of daily price return rate of the industry were carried out,and the industry impact of circuit breaker mechanism was further analyzed based on the results of out of sample prediction.The empirical results show that the implementation of circuit breaker mechanism causes breakpoints of volatility in nine industries and significantly increases volatility in nine industries.Moreover,the implementation of circuit breaker mechanism has different impacts on different industries,with the smallest impact on telecommunication industry,the largest impact on the pharmaceutical industry,and the milder impact on other industries.In addition,the implementation of circuit breaker mechanism causes the industry volatility to increase suddenly,thus deviating from the supply and demand relationship of the original industry,among which the financial industry deviates the least,and the materials industry deviates the most.Finally,based on the empirical results of in sample fitting and out of sample prediction,combining with the existing theoretical knowledge,this paper proposes a market stabilization strategy.Based on the results of fitting within the sample,first of all,we should consider setting different fuse threshold in different industries to ensure the pertinence and integrity of the threshold setting.Moreover,it can be considered to carry out pilot operation in the telecom industry first,so as to avoid the abnormal fluctuations and huge losses caused by the direct use of the CSI 300 index.Then,after the implementation of the circuit breaker mechanism,supervision of relevant departments should be strengthened,and corresponding emergency treatment policies should be issued to prevent it.Based on the results of out of sample prediction,first of all,before the implementation of circuit breakermechanism,relevant institutions should do some market research and fully consider the cross-impact of various systems in the market.Secondly,considering the sensitivity of different industries to policies,the corresponding floating circuit breaker threshold is adopted to improve the efficiency of policy implementation,which is more conducive to the stable operation of the securities market.