Journal of Finance (2024)

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Wiley Online Library(peer-reviewed)·onlinelibrary.wiley.com/doi/10.1111/jofi.13310

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4/5

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High quality. Established institution or organization with editorial oversight and accountability.

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This is a financial economics paper about stock market circuit breakers with limited direct relevance to AI safety; it may be tangentially relevant to discussions of automated trading safeguards or kill-switch analogies in AI systems.

Metadata

Importance: 12/100journal articleprimary source

Summary

This paper analyzes the unintended consequences of circuit breakers in financial markets, showing that while these trading halts are designed to stabilize markets during volatility, they can produce adverse effects by distorting trading behavior and price discovery. The authors develop a theoretical model examining how circuit breakers interact with investor behavior and market dynamics.

Key Points

•Circuit breakers intended to curb volatility can paradoxically accelerate selling pressure as traders rush to exit before trading halts trigger.
•The paper models how anticipation of circuit breakers distorts price discovery and liquidity provision in financial markets.
•Regulatory interventions in markets can have systemic unintended consequences that undermine their original stabilization goals.
•The analysis has implications for how market circuit breakers should be designed to minimize perverse incentive effects.
•Published in Journal of Finance Vol. 79 (2024) by MIT Sloan and Boston University researchers.

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[The Journal of Finance](https://onlinelibrary.wiley.com/journal/15406261 "The Journal of Finance homepage")

[Volume 79, Issue 2](https://onlinelibrary.wiley.com/toc/15406261/2024/79/2) pp. 1405-1455 [![The Journal of Finance](https://onlinelibrary.wiley.com/pb-assets/journal-banners/15406261-1501384737817.jpg)](https://onlinelibrary.wiley.com/journal/15406261 "The Journal of Finance homepage")

ARTICLE

# The Dark Side of Circuit Breakers

[HUI CHEN](https://onlinelibrary.wiley.com/authored-by/CHEN/HUI),

HUI CHEN

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[ANTON PETUKHOV](https://onlinelibrary.wiley.com/authored-by/PETUKHOV/ANTON),

ANTON PETUKHOV

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[JIANG WANG](https://onlinelibrary.wiley.com/authored-by/WANG/JIANG),

Corresponding Author

JIANG WANG

- [wangj@mit.edu](mailto:wangj@mit.edu "Link to email address")

Correspondence: Jiang Wang, MIT Sloan School of Management, E62-614, 100 Main Street, Cambridge, MA 02142, USA; e-mail: [wangj@mit.edu](mailto:wangj@mit.edu "Link to email address").

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[HAO XING](https://onlinelibrary.wiley.com/authored-by/XING/HAO),

HAO XING

Hui Chen is with Sloan School of Management at MIT and NBER. Anton Petukhov is with Citadel. Jiang Wang is with Sloan School of Management at MIT, CAFR, and NBER. Hao Xing is with Questrom School of Business at Boston University. We are grateful to Philip Bond (the Editor) for insightful suggestions, the Associate Editor, and two anonymous referees for valuable comments. We thank Daniel Andrei; Doug Diamond; Jennifer Huang; Leonid Kogan; Pete Kyle; Hong Liu; Lubos Pastor; Steve Ross; Liyan Yang; and seminar participants at Boston University, INSEAD, MIT, Peking University, PBCSF, University of Chicago, NBER Asset Pricing meeting, Minnesota Asset Pricing Conference, NYU Shanghai Volatility Institute Conference, Hanqing Summer Finance Workshop, CICF, and WFA for comments. We have read _The Journal of Finance_ disclosure policy and have no conflicts of interest to disclose.

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[HUI CHEN](https://onlinelibrary.wiley.com/authored-by/CHEN/HUI),

HUI CHEN

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[ANTON PETUKHOV](https://onlinelibrary.wiley.com/authored-by/PETUKHOV/ANTON),

ANTON PETUKHOV

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[JIANG WANG](https://onlinelibrary.wiley.com/authored-by/WANG/JIANG),

Corresponding Author

JIANG WANG

- [wangj@mit.edu](mailto:wangj@mit.edu "Link to email address")

Correspondence: Jiang Wang, MIT Sloan School of Management, E62-614, 100 Main Street, Cambridge, MA 02142, USA; e-mail: [wangj@mit.edu](mailto:wa

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