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Empirical evidence on the role of trading suspensions in disseminating new information to the capital market

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Author Info
Engelen, P.J.
Kabir, R. (Tilburg University, Center for Economic Research)
Abstract

This paper examines the effect of temporarily suspending the trading of exchange-listed individual stocks. We evaluate whether the regulatory authorities can successfully use the mechanism of trading halts in forcing companies to disclose new and material information to the capital market. In contrast to previous studies which mainly concentrate on North-American stock markets, this study utilises a new data set comprising of firms listed on the Brussels Stock 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 after the reinstatement of trading. On the other hand, we do not find any increase in stock return volatility around trading suspensions. Overall, our results confirm the efficacy of trading suspensions in disseminating new information.

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Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 92.

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Date of creation: 2001
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Handle: RePEc:dgr:kubcen:200192

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Find related papers by JEL classification:
G30 - Financial Economics - - Corporate Finance and Governance - - - General
G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Lee, Charles M C & Ready, Mark J & Seguin, Paul J, 1994. " Volume, Volatility, and New York Stock Exchange Trading Halts," Journal of Finance, American Finance Association, vol. 49(1), pages 183-214, March. [Downloadable!] (restricted)
  2. Hopewell, Michael H & Schwartz, Arthur L, Jr, 1978. "Temporary Trading Suspensions in Individual NYSE Securities," Journal of Finance, American Finance Association, vol. 33(5), pages 1355-73, December. [Downloadable!] (restricted)
  3. Ferris, Stephen P & Kumar, Raman & Wolfe, Glenn A, 1992. "The Effect of SEC-Ordered Suspensions on Returns, Volatility, and Trading Volume," The Financial Review, Eastern Finance Association, vol. 27(1), pages 1-34, February.
  4. Roni Michaely & Richard H. Thaler & Kent Womack, 1994. "Price Reactions to Dividend Initiations and Omissions: Overreaction or Drift?," NBER Working Papers 4778, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  5. Arnold R. Cowan & Anne M.A. Sergeant, 1996. "Trading Frequency and Event Study Test Specification," Finance 9610002, EconWPA. [Downloadable!]
  6. Lifan Wu, 1998. "Market Reactions to the Hong Kong Trading Suspensions: Mandatory versus Voluntary," Journal of Business Finance & Accounting, Blackwell Publishing, vol. 25(3&4), pages 419-437. [Downloadable!] (restricted)
  7. Kabir, Rezaul, 1994. "Share Price Behaviour around Trading Suspensions on the London Stock Exchange," Applied Financial Economics, Taylor and Francis Journals, vol. 4(4), pages 289-95, August. [Downloadable!] (restricted)
  8. Rafael LaPorta & Florencio Lopez de-Silanes & Andrei Shleifer & Robert W. Vishny, 1997. "Legal Determinants of External Finance," Harvard Institute of Economic Research Working Papers 1788, Harvard - Institute of Economic Research.
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  9. Skinner, Douglas J., 1989. "Options markets and stock return volatility," Journal of Financial Economics, Elsevier, vol. 23(1), pages 61-78, June. [Downloadable!] (restricted)
  10. Campbell, Cynthia J. & Wesley, Charles E., 1993. "Measuring security price performance using daily NASDAQ returns," Journal of Financial Economics, Elsevier, vol. 33(1), pages 73-92, February. [Downloadable!] (restricted)
  11. 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. [Downloadable!]
  12. 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. [Downloadable!] (restricted)
  13. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December. [Downloadable!] (restricted)
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  14. Cowan, Arnold R. & Sergeant, Anne M. A., 1996. "Trading frequency and event study test specification," Journal of Banking & Finance, Elsevier, vol. 20(10), pages 1731-1757, December. [Downloadable!] (restricted)
  15. Dimson, Elroy, 1979. "Risk measurement when shares are subject to infrequent trading," Journal of Financial Economics, Elsevier, vol. 7(2), pages 197-226, June. [Downloadable!] (restricted)
  16. 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.
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  1. 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. [Downloadable!] (restricted)
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