Research topic: limit downs and circuit breakers

Introduction

In response to the market crashes in October 1987 and October 1989 the New York Stock Exchange instituted circuit breakers to reduce volatility and promote investor confidence. By implementing a pause in trading, investors are given time to assimilate incoming information and make informed choices during periods of high market volatility.

With the implementation of circuit breakers, the US have not suffered the similar stock crisis for 18 years until October 2008. However, as economies worldwide are either facing a recession or in a recession, investors shunned the US stock index futures, decreasing particularly sharply on 24 Oct 2008. A limit down was enacted in response. A limit down is the maximum the price of a futures contract can decline in one trading day.

There are thresholds at which trading on both the NYSE and Nasdaq is halted marketwide based on single-day declines in the Dow Industrials average. A NYSE circuit-breaker halt was last triggered on 27 Oct 1997 during a wide-scale market plunge triggered by a financial crisis in Asia. In unprecedented action, trading was halted twice back then as the sell-off steamrolled through NYSE circuit breakers, first when the Dow was down 350 points and later as it fell 550 points.

Requirements

This research concerns whether circuit breakers and the enactment of limit downs actually help to curb market losses or whether those market losses are delayed and still manifest after trading is resumes. Are circuit breakers common in one market, but particularly rare in others and what market characteristics exist that help to predict whether a market is prone to the enactment of circuit breakers and limit downs? Is there an effect on measures of market volatility? Is there a correlation with P/E ratios for stock exchanges or technical indicators for either stock exchanges and futures exchanges?

Profile of candidate

Knowledge of financial products - such as equities and futures - and behavioral economics.

The following planning is proposed, each is expected to last about 1 month.

  1. Research solution and identify options for development : draft project proposal, investigate options for solution implementation including testing guidelines and storage guidelines.
  2. Develop and implement solution, including half term presentation.
  3. Write final report, including final presentation.

Terms and conditions

The internship needs not be developed at the office, but can be performed at the university.

An internship reimbursement is applicable.

This project is expected to last 3 months. Although full time availability is recommended, this is not a strict requirement and availability of 3 days or more per week is acceptable. The candidate should be able to manage his/her own time and regularly update Hobury on progress and issues. Both an intermediate (half term) and a final presentation will be part of this internship assignment.

Copyright of the solution remains with Hobury.