Do Circuit Breakers Actually Reduce Long-Term Volatility or Just Delay the Inevitable Price Discovery?

The debate is ongoing. Proponents argue that circuit breakers reduce panic-driven volatility by forcing a cooling-off period, allowing rational analysis to return to the market.

This can prevent crashes from overshooting their "fundamental" value. Critics, however, argue they merely delay price discovery and can exacerbate panic.

Knowing a halt is imminent might cause investors to sell even more aggressively to get out before they are trapped. They can also create a liquidity vacuum right when it is needed most, potentially leading to a more severe drop when the market reopens.