Still in Search for Answers: A Critical Survey On the Circuit Breaker Regulation

Following the 1987 stock market crash, there has been much discussion in policy circles about the use of circuit breakers in financial markets. Proponents argue that circuit breakers reduce overreactions, while skeptics suggest that it harms the price discovery process. As yet, investors know very little about the effects of such breakers on price dynamics, and the few relevant empirical studies that do exist produced very ambiguous results. This paper critically surveys studies conducted on circuit breakers and offers possible reasons for the inconclusiveness of the findings in existing literature.