Stock Market Crashes and the Performance of Circuit Breakers: Empirical Evidence




    Search for more papers by this author
    • School of Business Administration, Bar Ilan University, and Faculty of Industrial Engineering and Management, Technion, respectively. The paper has benefited from presentations at the 1991 European Finance Association Meetings (Rotterdam), the 1991 Econometric Society European Meetings (Cambridge), Bar-Ilan University, Erasmus University, Hebrew University, the University of Pittsburgh, and the University of Tilburg. Sam Brunfeld (Chairman of the Tel-Aviv Stock Exchange), two anonymous referees, and René Stulz (the editor) offered many helpful comments. Any remaining errors are our responsibility. Financial support from the Technion Vice President Research Fund is gratefully acknowledged.


This study examines the behavior of a small stock market with circuit breakers and with a one-hour preauction order imbalance disclosure, during the October 1987 crash. The crash and its aftershocks lasted for a week and selling pressure was concentrated in higher beta, larger capitalization, and lower leverage firm stocks. Circuit breakers when implemented reduced the next-day opening order imbalance and the initial price loss; however, they had no effect on the long-run response. Some price overreaction and reversal phenomena also are documented.