3rd of June 2019
Jours fixes usually take place on the first monday of the month, starting at 5:00 p.m., in HoF E.01 / Deutsche Bank of the House of Finance (Campus Westend).
[Benjamin Clapham, E-Finance Lab]
Is there a Magnet Effect of Rule-Based Circuit Breakers in Times of High-Frequency Trading?
We analyze whether rule-based circuit breakers in the form of short-lived volatility interruptions exhibit a magnet effect in times of high-frequency trading. Based on a sample of 3,271 volatility interruptions on two major European venues, we analyze whether trading aggressiveness, trading activity, and volatility accelerate close to volatility interruptions indicating a magnet effect. Although the duration of the interruptions is meaningful given today's high-frequent securities markets, we do not find any evidence for a magnet effect. Rather, our results show that trading aggressiveness, trading activity, and volatility gradually slow down towards the triggering threshold and that price changes even revert in case of downward-triggered interruptions. These findings hold both for different levels of high-frequency trading activity and for disclosed and undisclosed price limits triggering the circuit breaker.