Examining the Effectiveness of Circuit Breaker by Quantifying the S&P 500 Index's Development: Implications for Financial Market Regulation

Yu, H.

The U. S. financial regulators have established the circuit breaker rule to protect American households from sudden market crashes. If the markets slump to a certain percentage, the rule halts trading for a certain period of time. The circuit breaker rule was triggered four times in response to the stock market plummeting due to COVID-19. By analyzing the S&P 500 Index's performance in March 2020, this paper explores whether the circuit breaker can stimulate market recovery on the days following sudden slumps. According to the data, without the circuit breaker rule, the market would continue to slump by up to -19.98% on the days following the previous crashes. In reality, the rule has successfully prevented the predicted plummet and further stimulated the market to recover for up to 9.31% percent. The recovery was present in all eleven S&P 500 sectors when the markets triggered circuit breaker, but there shows no strong correlation between the degree of recovery and the industries' performance during market slumps. © 2021 ACM.