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Anatomy of a Market Failure: NYSE Trading Suspensions (1974-1988)

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  • Utpal Bhattacharya
  • Matthew Spiegel

Abstract

A cross-sectional analysis of all trading suspensions that occurred during the period 1974-1988 in the New York Stock Exchange reveals that though the desire to maintain price continuity remains an important motivation to suspend trade, inventory imbalance fears are pronounced for large firms. Adverse selection concerns afflict all news related suspensions irrespective of firm size. Further, we find substitutability amongst the various dimensions of liquidity: while large cap stocks have lower bid-ask spreads, they halt more often. A time-series analysis shows that the resiliency of the exchange -- its ability to absorb severe volatility shocks -- has improved in this period.

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File URL: http://icfpub.som.yale.edu/publications/2651
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Bibliographic Info

Paper provided by Yale School of Management in its series Yale School of Management Working Papers with number ysm33.

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Date of creation: 01 May 1997
Date of revision: 01 Apr 2003
Handle: RePEc:ysm:somwrk:ysm33

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Web page: http://icf.som.yale.edu/
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Related research

Keywords: Trading halts; Market resiliency; Liquidity; Inventory control; Adverse selection;

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  1. Hans R. Stoll, . "The Supply of Dealer Services in Securities Markets," Rodney L. White Center for Financial Research Working Papers 02-78, Wharton School Rodney L. White Center for Financial Research.
  2. George, Thomas J & Kaul, Gautam & Nimalendran, M, 1991. "Estimation of the Bid-Ask Spread and Its Components: A New Approach," Review of Financial Studies, Society for Financial Studies, vol. 4(4), pages 623-56.
  3. Roll, Richard, 1984. " A Simple Implicit Measure of the Effective Bid-Ask Spread in an Efficient Market," Journal of Finance, American Finance Association, vol. 39(4), pages 1127-39, September.
  4. Hasabrouck, Joel & Sofianos, George, 1993. " The Trades of Market Makers: An Empirical Analysis of NYSE Specialists," Journal of Finance, American Finance Association, vol. 48(5), pages 1565-93, December.
  5. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-35, November.
  6. Brennan, Michael J., 1986. "A theory of price limits in futures markets," Journal of Financial Economics, Elsevier, vol. 16(2), pages 213-233, June.
  7. Ho, Thomas & Stoll, Hans R., 1981. "Optimal dealer pricing under transactions and return uncertainty," Journal of Financial Economics, Elsevier, vol. 9(1), pages 47-73, March.
  8. Ho, Thomas S Y & Stoll, Hans R, 1983. " The Dynamics of Dealer Markets under Competition," Journal of Finance, American Finance Association, vol. 38(4), pages 1053-74, September.
  9. Wood, Robert A & McInish, Thomas H & Ord, J Keith, 1985. " An Investigation of Transactions Data for NYSE Stocks," Journal of Finance, American Finance Association, vol. 40(3), pages 723-39, July.
  10. 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.
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