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Empirical Evidence on the Role of Trading Suspensions in Disseminating New Information to the Capital Market

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  • Peter-Jan Engelen
  • Rezaul Kabir

Abstract

This paper examines the effect of temporarily suspending the trading of exchange-listed individual stocks. We evaluate whether regulatory authorities can successfully use the mechanism of trading suspension in forcing companies to disclose new and material information to the capital market. Previous studies on trading suspensions mainly concentrate on North-American stock markets and find conflicting results. This study utilizes a new data set comprising of firms listed on Euronext Brussels - an important segment of Europe's leading cross-border exchange. Our results show that suspension is indeed an effective means of disseminating new information. Stock prices adjust completely and instantaneously to the new information released during trading suspensions. We also observe a significant increase in trading volume with the reinstatement of trading. On the other hand, we do not find support for the claim that trading suspensions increase the volatility of stock prices. Overall, our results show the efficacy of trading suspensions in disseminating new information. Copyright 2006 The Authors Journal compilation (c) 2006 Blackwell Publishing Ltd.

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Article provided by Wiley Blackwell in its journal Journal of Business Finance & Accounting.

Volume (Year): 33 (2006-09)
Issue (Month): 7-8 ()
Pages: 1142-1167

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Handle: RePEc:bla:jbfnac:v:33:y:2006-09:i:7-8:p:1142-1167

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  1. Lifan Wu, 1998. "Market Reactions to the Hong Kong Trading Suspensions: Mandatory versus Voluntary," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 25(3&4), pages 419-437.
  2. Howe, John S. & Schlarbaum, Gary G., 1986. "SEC Trading Suspensions: Empirical Evidence," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 21(03), pages 323-333, September.
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  4. La Porta, Rafael & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1997. " Legal Determinants of External Finance," Journal of Finance, American Finance Association, vol. 52(3), pages 1131-50, July.
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  10. Shane A. Corwin & Marc L. Lipson, 2000. "Order Flow and Liquidity around NYSE Trading Halts," Journal of Finance, American Finance Association, vol. 55(4), pages 1771-1805, 08.
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  13. Kryzanowski, Lawrence & Nemiroff, Howard, 1998. "Price Discovery around Trading Halts on the Montreal Exchange Using Trade-by-Trade Data," The Financial Review, Eastern Finance Association, vol. 33(2), pages 195-212, May.
  14. Arnold R. Cowan & Anne M.A. Sergeant, 1996. "Trading Frequency and Event Study Test Specification," Finance 9610002, EconWPA.
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Citations

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Cited by:
  1. Frino, Alex & Lecce, Steven & Segara, Reuben, 2011. "The impact of trading halts on liquidity and price volatility: Evidence from the Australian Stock Exchange," Pacific-Basin Finance Journal, Elsevier, vol. 19(3), pages 298-307, June.
  2. Xu, Hai-Chuan & Zhang, Wei & Liu, Yi-Fang, 2014. "Short-term market reaction after trading halts in Chinese stock market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 401(C), pages 103-111.
  3. Kim, Yong H. & Yagüe, José & Yang, J. Jimmy, 2008. "Relative performance of trading halts and price limits: Evidence from the Spanish Stock Exchange," International Review of Economics & Finance, Elsevier, vol. 17(2), pages 197-215.
  4. Peter-Jan Engelen, 2004. "Criminal Behavior: A Real Option Approach With an Application to Restricting Illegal Insider Trading," European Journal of Law and Economics, Springer, vol. 17(3), pages 329-352, May.
  5. Hai-Chuan Xu & Wei Zhang & Yi-Fang Liu, 2013. "Short-term Market Reaction after Trading Halts in Chinese Stock Market," Papers 1309.1138, arXiv.org, revised Jun 2014.

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