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When a halt is not a halt: An analysis of off-NYSE trading during NYSE market closures

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  • Chakrabarty, Bidisha
  • Corwin, Shane A.
  • Panayides, Marios A.
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    Abstract

    Though trading halts are a common feature in securities markets, the issues associated with the coordination of these halts across markets are not well understood. In fact, regulations often allow traders to circumvent trading halts through the use of alternative venues. Using a sample of order imbalance delayed openings on the NYSE, we examine the costs and benefits of continued trading on alternative venues when the main market calls a halt. We find that trades routed to off-NYSE venues during NYSE halts are associated with significant price discovery and lead to an improved post-halt trading environment. In addition, limit orders routed through ECNs reflect price-relevant information even prior to the halt, with limit book imbalances decreasing and depth filling in during the halt around the eventual reopening NYSE price. However, these informational benefits come at a substantial cost, as both execution costs and volatility are extremely high on off-NYSE venues during NYSE halts.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Financial Intermediation.

    Volume (Year): 20 (2011)
    Issue (Month): 3 (July)
    Pages: 361-386

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    Handle: RePEc:eee:jfinin:v:20:y:2011:i:3:p:361-386

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    Web page: http://www.elsevier.com/locate/inca/622875

    Related research

    Keywords: Trading halt Price discovery Off-NYSE trading ECN Flash crash;

    References

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    Cited by:
    1. 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.
    2. Jos, van Bommel, 2011. "Measuring price discovery: The variance ratio, the R2, and the weighted price contribution," Finance Research Letters, Elsevier, vol. 8(3), pages 112-119, September.

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