Market-wide circuit breakers are trading halts aimed at stabilizing the market during dramatic price declines. Using an intertemporal equilibrium model, we show that a circuit breaker significantly alters market dynamics and affects investor welfare. As the market approaches the circuit breaker, price volatility rises drastically, accelerating the chance of triggering the circuit breaker—the so-called “magnet effect,” returns exhibit increasing negative skewness, and trading activity spikes up. Our empirical analysis supports the model's predictions. Circuit breakers can affect overall welfare negatively or positively, depending on the relative significance of investors' trading motives for risk sharing versus irrational speculation.

中文翻译：

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断路器的阴暗面

全市场熔断机制是指交易暂停，旨在在价格大幅下跌期间稳定市场。使用跨期均衡模型，我们表明熔断机制会显着改变市场动态并影响投资者福利。随着市场接近熔断，价格波动急剧上升，加速触发熔断的机会——即所谓的“磁力效应”，收益呈现出越来越大的负偏态，交易活动激增。我们的实证分析支持模型的预测。熔断机制可能会对整体福利产生负面或正面影响，具体取决于投资者风险分担交易动机与非理性投机的相对重要性。