The safety switches designed to stop market crashes are actually making them worse.
April 17, 2026
Original Paper
Breaking News
SSRN · 6460769
The Takeaway
Stock market circuit breakers are supposed to pause trading and calm everyone down when prices move too fast. However, this study found that these pauses actually prevent 'fundamental news' from being priced in correctly. Instead of stabilizing the market, the breakers cause prices to overshoot wildly once trading resumes. It’s a classic case of a regulatory tool creating the exact instability it was meant to prevent. For the average investor, it means that the 'safety nets' in the system might actually be the thing that trips you up during a crisis.
From the abstract
This paper examines how regulatory interventions in high-frequency financial markets affect price discovery. We focus on Breaking news, where dynamic circuit breakers trigger trading halts immediately after the release of macroeconomic fundamentals. Within a high-frequency signal-in-noise model, we show that triggering rules complicate statistical inference for the price impact of news, rendering conventional non-parametric jump estimators inconsistent. Building on this insight, we develop a reg