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Effectiveness of Trading Pauses: Evidence from the Tokyo Stock Exchange

Author

Listed:
  • Akitada Kasahara

    (Graduate School of Economics, the University of Osaka)

  • Masahiro Yamada

    (School of Management, Tokyo University of Science)

Abstract

We estimate the causal effect of single-stock trading pauses on market quality using tick-by-tick order book data from the Tokyo Stock Exchange (TSE). Our instrumental variable exploits the TSE’s fixed yen-denominated triggering thresholds, which generate plausibly exogenous variation in the percentage distance to a trading pause across stocks with different price levels. Trading pauses significantly reduce post-event volatility, narrow quoted bid–ask spreads, and facilitate price discovery. Orderlevel analysis reveals the mechanism: during pauses, liquidity providers submit opposite-direction limit orders at aggressively priced levels that push the matching price toward reversal, generating the observed improvements. These effects are strongest for less frequently traded stocks, where incremental liquidity has the largest impact. However, the benefits are attenuated for highly volatile stocks with recent negative returns, particularly during broad market downturns.

Suggested Citation

  • Akitada Kasahara & Masahiro Yamada, 2026. "Effectiveness of Trading Pauses: Evidence from the Tokyo Stock Exchange," Discussion Papers in Economics and Business 26-03, Osaka University, Graduate School of Economics.
    • Handle: RePEc:osk:wpaper:2603
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    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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