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The effects of trading halts on price discovery for NYSE stocks

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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.

Document Type: Research Article


Affiliations: 1: Gore School of Business, Westminster College, 1840 South 1300 East, Salt Lake City, UT, USA 2: Merrick School of Business, University of Baltimore, 1420 North Charles Street, Baltimore, MD 21201, USA 3: Goizueta School of Business, Emory University, Atlanta, GA 30322, USA

Publication date: 2003-01-01

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