Circuit breakers på det danske aktiemarked: Automatiske handelspausers effekt på kursdannelsen og handlen

Simon Søberg Jørgensen

Student thesis: Master thesis


This thesis examines the effect of Circuit Breakers on the Danish equities market. The shares of the 35 most traded companies are examined in order to analyze the impact on volatility, price patterns and trading volumes of the automatic trading halt mechanism introduced on the Danish market in June 2008. A detailed analysis of return and volatility around Circuit Breakers for a sample of 189 halted stocks captured over the period 1 June 2008 to 30 June 2009 allows this study to give insight into the impact of Circuit Breakers on the Danish market and by such enables a better understanding of the trading behavior surrounding the automatic trading halts. First, the study uses the Pseudo Halt method introduced by Lee, Ready and Seguin on trading data in 60 one minute intervals centered on the halt to examine the impact on stock price volatility during and following the halt. Second, the study uses 10 minute intervals within an hour before and after the halt to examine the correlation between the return on each side of the halt and finally, the study uses the pseudo halt method to examine the impact on trading volumes during and following the halts. This study finds that Circuit Breakers do not reduce stock market volatility. Rather they seem to result in abnormal high volatility in the period immediately following the halt. Additionally, Circuit Breakers seem to result in significant price reversals over the first hour following the halt and furthermore, the traded volume within the Circuit Breakers seems to be relatively lower than immediately before and after while the traded volumes immediately following the halt seems to be abnormally high. The study finds that Circuit Breakers are typically not triggered in connection with the dissemination of company announcements and that those who are are typically triggered between 30 minutes to 2 hours following the announcement. This suggests that the Circuit Breakers are a poor substitution for the traditional trading halt system on the Danish Market and does not provide protection to investors as originally proposed. It suggests that the Circuit Breakers are associated with overreactions in the market but that they do not fully allow for an efficient price adjustment here for as well for dissemination of new information and order imbalances. Overall, the study concludes that Circuit Breakers have an immediate negative impact on market quality.

EducationsMSc in Finance and Accounting, (Graduate Programme) Final Thesis
Publication date2009
Number of pages81