Disastrous events sometimes engender redeeming social benefits. The international crash of equity markets in mid-October 1987 is a case in point, for it has provoked many scientific papers, both theoretical and empirical, on market volatility, international market links, and market structure, papers that may have never been written without the crash as a catalyst. The purpose of the present article is to provide an assessment of some of the most significant empirical studies and to summarize their implications about possible regulatory reform of the equity and futures markets. In addition, I will present some new evidence about volatility and its relation to existing market regulations across countries.

Price volatility, international market links, and their implications for regulatory policies

This paper presents an empirical analysis of firms that are delisted from a major stock exchange. The delisting process is described and stock price movements surrounding delisting are analyzed. For firms with prior announcements, equity values decline by approx? imately 8.5 percent on announcement day. For firms without prior announcements, a sim? ilar adjustment takes place between the last day of trading in the initial market and the close of the first day of trading in the new market. Four hypotheses concerning the decline in firm value are examined. These are the liquidity hypothesis, the management signalling hypothesis, the exchange certification hypothesis, and the downward sloping demand curve hypothesis. Evidence consistent with the liquidity hypothesis is presented in the paper. Unlike evidence on stock exchange listings, returns in the post-delisting period do not appear to be anomalous.

An Empirical Analysis of Common Stock Delistings

Following the market crash in 1987, there has been increased interest in the usefulness of price limits as well as other forms of market controls. The purpose of this research is to investigate price limits and the empirical behavior of futures prices for a selected group of commodities around price limits. For the group of commodities examined in this research, the empirical results show that for the time periods analyzed, in general: 

1

The period of time immediately preceding limit moves is characterized by major changes in the direction of the limit price while following the limit move; prices tend to either stabilize or reverse directions, thus suggesting that price limits may provide a cooling-off period for the market.




2

Price limits also appear to be accompanied by substantial reductions in volatility. This attenuation of volatility in the post-limit period and the maintenance of volume in the post-limit period tend to suggest that liquidity may not be severely impaired by the limit move process.

Volatility, price resolution, and the effectiveness of price limits

Limit moves and price resolution: The case of the treasury bond futures market

After the stock market crash of October 1987, the Brady Report (1988) and several academic researchers suggested the imposition of "circuit breakers" to prevent the market from fluctuating excessively. Most financial markets in the world have imposed circuit breaker systems, in the form of price limits and trading halts, in an attempt to reduce excessive market volatility. Similar to any other regulations, circuit breakers have proponents and opponents. In this survey, we analyze the benefits and costs of each type of circuit breaker, provide existing theoretical models and predictions related to each type of circuit breaker, and present findings from empirical studies to justify or disqualify the existence of circuit breakers. In addition, we synthesize existing studies and offer directions for further research in this area.

https://papers.ssrn.com/sol3/Delivery.cfm?abstractid=572902

What Makes Circuit Breakers Attractive to Financial Markets?: A Survey

WHILE MOST LAWYERS, government officials and security regulators would find it difficult to conceive of an efficient and equitable stock market without existing security regulation, a number of brokers, investors and economists would not find it difficult to do so. Although the merits of each viewpoint have been debated (and specified in an efficient market framework in [23]), the efficacy of current regulation can only be determined by empirical tests. However, to date, most of the empirical research on security regulation has dealt with the role played by the United States Securities and Exchange Commission (SEC) and the United States Securities Acts of 1933 and 1934 in improving the economic performance of American security markets [for exceptions, see 23, 24, 25, 34, 35]. More

Lawrence Kryzanowski

Papers

The Efficacy of Trading Suspensions: A Regulatory Action Designed to Prevent the Exploitation of Monopoly Information