Do Market-Wide Circuit Breakers Calm the Markets or Panic Them?

Market-wide circuit breakers (MWCBs), which halt trading for 15 minutes across all U.S. stock exchanges, were triggered four times in March 2020. We provide some of the first evidence on the effectiveness of MWCBs using tick data. Although MWCBs increase stocks’ realized volatility and quoted spread after markets reopen, they boost stocks’ trading volume and shore up purchases of the stocks that are hit hard. We also find the market reopening mechanisms of different stock exchanges complicate the operation of MWCBs. In sum, our results suggest that the MWCBs help to stabilize the markets despite aggravating the trading environment initially.