Market microstructure issues related to the Greek capital market
Since the stock market crash of October 1987, academics and policy makers have been very concerned about the causes of the crash and whether the microstructure of the equity market should be redesigned to protect the market from drastic fluctuations. For their concerns, circuit breakers have been recommended as the mechanisms for the market stabilisation and for reducing the volatility of the stock market. Empirical and theoretical studies carried out so far have not been able to conclusively resolve the debate on the effects of circuit breakers on financial markets. As a result, this thesis aims to contribute to the market microstructure literature and to add empirical content to current academic and policy discussions, by conducting an investigation on the effects and implications of circuit breakers on financial markets, focusing on daily price limits, transaction taxes and margin requirements, with specific reference to the Greek capital market. Based on our empirical findings, we provide little evidence in support of the effectiveness of the above regulatory measures, in line with previous literature. Furthermore, our empirical findings suggest that both researchers and policy makers. should continue their efforts to conduct further tests on their suitability, as well as in exploring other mechanisms and channels, which might be more effective in stabilising the market and reducing volatility. Finally, the empirical findings in this thesis support what Roll (1989) stated over 17 years ago in his comprehensive review on the implications for regulatory policy. that there is little evidence in favour of the efficacy of margin requirements, price limits and transaction taxes.
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