Benefits and Limits of Circuit Breaker: Institutional Design Using Artificial Futures Market

概要

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In various stock markets, an institution called a “circuit breaker” exists to interrupt trading of stocks for a certain period when stock prices change significantly. The purpose of this institution is to directly control rapid changes in stock prices and avoid confusion in the market. However, the benefits and drawbacks of the effectiveness of circuit breakers have been discussed back and forth. In this study, we consider the influence of circuit breakers on a futures market by using an artificial market simulator, “U-Mart,” by operating the period of interruption. From experimental results, we found the following: circuit breakers play an important role in controlling price fluctuations and in stabilizing the settlement system, while they also reduce the trading volume. Circuit breakers greatly reduce the volatility when market liquidity is low. In high liquidity situations, circuit breakers prevent the maldistribution of profits, which is caused by an increase in bankruptcies. We also suggest that the period of interruption is an important parameter in the institutional design of a circuit breaker, since the volatility and the number of bankruptcies are sensitive to the period.