Evaluating market supervision through an overview of trading halts in the Portuguese stock market
This study concerns how well stock market regulators prevent trading by using trading halts when they suspect asymmetric information in the market. Security trading halts in the Portuguese stock market are analysed to measure the effectiveness of trading halts imposed by market authorities
as well as their timing in interrupting and restarting trading. Stock price returns, abnormal returns and volatility are used to compare the significance of differences for pre-and post-halt periods. First the global sample is used to analyse abnormal returns and then it is split into good
and bad news halts. A GARCH (1,1) model is also applied and found to be a more sensitive instrument on justifying trading halts. Justification for trading halts tends to rise as event window size increases, suggesting that supervisory authorities tend to spot the dominant changes better. In
fact, when very short time-sampling periods are used weaker justifications for stock halting are found. The opportunity for market authorities to interrupt trading seems to be increasing. In terms of timing they seem, on the whole, to be delayed when imposing trading halts or anticipated when
authorising the restart. Nevertheless, when considering good news, although the halt tends to be late the restart seems to be on time. It is concluded that all methodologies should be jointly applied by stock watch departments of supervision authorities for detecting trading under asymmetric
information, but special attention is drawn to GARCH methodologies that show superior ability for detecting changes in stock characteristics.