15 Sep 2015

Research Project analyzes Volatility Interruptions

Peter Gomber, Chair of e-Finance at Goethe University Frankfurt, receives funding from the Frankfurt Institute for Risk Management and Regulation (FIRM) for a research project on the systematic analysis of volatility interruptions (“circuit breakers”) implemented in European equity markets. The two-year project “Management of Market Risks: Regulation and Coordination of Volatility Interruptions in Europe” will start in October within the SAFE research program. By means of empirical analyzes and experiments, the aim of the research project is to assess whether volatility interruptions represent a suitable mechanism to minimize extreme price jumps and related market risks in the fragmented European markets.

In light of the large number of extreme price movements in recent years and the high relevance of high frequency trading, safeguards such as volatility interruptions seem to be necessary in order to ensure the integrity of securities markets. Therefore, this research project is intended to investigate how differently designed volatility interruptions influence market quality parameters such as volatility, liquidity and price discovery. Likewise, the research project will provide insights whether a coordination of volatility interruptions is necessary in the increasingly fragmented European securities trading landscape. The results of the research project can assist regulators and market operators in the implementation of volatility safeguards and help to protect investors and intermediaries against unfounded price fluctuations and market risks.