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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, M.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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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2001-92.

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

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Keywords: capital markets; information; trade;

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References

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  1. 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.
  2. Dimson, Elroy, 1979. "Risk measurement when shares are subject to infrequent trading," Journal of Financial Economics, Elsevier, vol. 7(2), pages 197-226, June.
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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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  7. 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.
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  11. 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.
  12. Skinner, Douglas J., 1989. "Options markets and stock return volatility," Journal of Financial Economics, Elsevier, vol. 23(1), pages 61-78, June.
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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. 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.
  3. 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.
  4. 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.
  5. 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.

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