Policy Effectiveness Analysis of China's Circuit Breaker Mechanism

From June to August 2015, China's security market suffered a severe decline due to the impact of the stock market crash. For this reason, the Shanghai Stock Exchange issued a notice on December 4, 2015, deciding to implement the circuit breaker mechanism on January 1, 2016. However, the mechanism was abolished only four days after its implementation. Therefore, this paper provides an empirical effectiveness analysis of this circuit breaker mechanism based on the nine CSI 300 industries using the regression discontinuity design method. The empirical results show that the implementation of the circuit breaker mechanism has led to the breakpoints of volatilities in nine industries and has significantly increased its market fluctuation. Moreover, we also find that the implementation of the circuit breaker mechanism has different impacts on the different industries, such as the effectiveness of the public, and consumer industries are at the medium level and show more stable fluctuations. Therefore, we suggest that the further circuit breaker mechanism in China's financial markets can be piloted from the public and consumer industries rather than directly implementing it on the whole CSI 300.