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The effects of trading halts on price discovery for NYSE stocks

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Listed:
  • Haiwei Chen
  • Honghui Chen
  • Nicholas Valerio

Abstract

This article uses intraday data for the year 1992 to investigate the effect of trading halts on price discovery for stocks traded on the New York Stock Exchange. The results show that the degree of benefits from trading halts depends on the types of halts and significance of the news items. It is found that trading halts reduce price dispersion when trading is halted due to imbalance in order flows. Such a positive effect is robust to the significance of news items. Trading halts can help price discovery when trading is halted due to the fact that some significant news items already hit the market and investors need more time to digest the impacts on price. In contrast, when officials call for the halt due to the pending news release with little significance, trading halts actually inject more noise into the prices and undermine the price discovery process. Overall, the results are consistent with the argument by exchanges that trading halts help dissipate information and facilitate the price discovery process.

Suggested Citation

  • Haiwei Chen & Honghui Chen & Nicholas Valerio, 2003. "The effects of trading halts on price discovery for NYSE stocks," Applied Economics, Taylor & Francis Journals, vol. 35(1), pages 91-97.
  • Handle: RePEc:taf:applec:v:35:y:2003:i:1:p:91-97
    DOI: 10.1080/00036840210161846
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    References listed on IDEAS

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    1. 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 1355-1373, December.
    2. Kim, Kenneth & Rhee, S Ghon, 1997. " Price Limit Performance: Evidence from the Tokyo Stock Exchange," Journal of Finance, American Finance Association, vol. 52(2), pages 885-899, June.
    3. Michael A. Goldstein & Kenneth A. Kavajecz, "undated". "Liquidity Provision during Circuit Breakers and Extreme Market Movements," Rodney L. White Center for Financial Research Working Papers 01-00, Wharton School Rodney L. White Center for Financial Research.
    4. 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, August.
    5. William G. Christie & Shane A. Corwin & Jeffrey H. Harris, 2002. "Nasdaq Trading Halts: The Impact of Market Mechanisms on Prices, Trading Activity, and Execution Costs," Journal of Finance, American Finance Association, vol. 57(3), pages 1443-1478, June.
    6. Brown, Keith C. & Harlow, W. V. & Tinic, Seha M., 1988. "Risk aversion, uncertain information, and market efficiency," Journal of Financial Economics, Elsevier, vol. 22(2), pages 355-385, December.
    7. De Bondt, Werner F M & Thaler, Richard, 1985. " Does the Stock Market Overreact?," Journal of Finance, American Finance Association, vol. 40(3), pages 793-805, July.
    8. Fabozzi, Frank J & Ma, Christopher K, 1988. "The Over-the-Counter Market and New York Stock Exchange Trading Halts," The Financial Review, Eastern Finance Association, vol. 23(4), pages 427-437, November.
    9. Easley, David & O'Hara, Maureen, 1992. " Time and the Process of Security Price Adjustment," Journal of Finance, American Finance Association, vol. 47(2), pages 576-605, June.
    10. 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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    Cited by:

    1. Ming-Chang Wang & Lon-Ping Zu & Chau-Jung Kuo, 2010. "Risk aversion, order strategy and price formation," Applied Economics, Taylor & Francis Journals, vol. 42(5), pages 627-640.
    2. Bacha, Obiyathulla I. & Mohamed, Eskandar R. & Ramlee, Roslily, 2008. "The Efficiency of Trading Halts; Evidence from Bursa Malaysia," MPRA Paper 13077, University Library of Munich, Germany.

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