This paper studies the magnet effect of market-wide circuit breakers and examines its possible forms using high-frequency data from the Chinese stock index futures market. Unlike previous studies that mainly analyzed the price trend and volatility, this paper is the first to consider the intraday price jump behavior in studying the magnet effect. We find that when a market-wide trading halt is imminent, the probability of a price decrease and the level of market volatility remain stable. However, the conditional probability of observing a price jump increases significantly, leading to a higher possibility of triggering market-wide circuit breakers, which is in support of the magnet effect hypothesis. In addition, we find a significant increase in liquidity demand and insignificant change in liquidity supply ahead of a market-wide trading halt, suggesting that the deterioration of market liquidity may play an important role in explaining the magnet effect.
Zhihong Jian ;
Zhican Zhu ;
Jie Zhou ;
Shuai Wu ;
The magnet effect of circuit breakers: A role of price jumps and market liquidity （2022年03月04日）http://www.cfrn.com.cn//lw/zbsc/scwgjglw/8be2fe3b0ac446b1a3a15b8ccdf6f9be.htm