The Efficiency of Circuit Breakers in Controlling Stock Market Volatility

Abstract

Price volatility has been a matter of discussion for many decades. The stock market crash during the recent outbreak of COVID-19 in India and elsewhere has raised serious concerns to regulators1. Dealing with concerns regarding price fluctuations typically requires a blend of regulatory measures, strategies for managing risks, and initiatives aimed at improving the transparency of the market2. Market participants, policymakers, and regulators continually monitor and respond to these fluctuations to maintain overall economic stability. Studies frequently highlight the crucial role of regulatory bodies in monitoring market activities, ensuring fair practices, and preventing manipulative behavior. In order to assess the effectiveness of circuit breakers in reducing volatility in the stock market, this study explores a crucial area of market regulation. The dynamic nature of financial markets, coupled with the ever-evolving landscape of trading practices and economic conditions, underscores the significance of regulatory interventions, particularly circuit breakers. It is becoming more and more significant for scholars, policymakers, and market participants to comprehend how circuit breakers affect market dynamics as financial markets maintain their centrality in global economies. This research seeks to provide a nuanced examination of the relationship between circuit breakers and stock market volatility, exploring their effectiveness, strengths, weaknesses, and implications for market stability. By assessing historical circuit breaker interventions and their outcomes, this study contributes valuable insights that can inform future regulatory strategies, fostering stable and efficient stock markets conducive to sustainable economic growth.