Price discovery around trading halts on the Montreal Exchange using trade-by-trade data

This paper investigates the price discovery process around exchange-initiated trading halts using 30 minute trade intervals on the Montreal Exchange. Trading halt price discovery, and regulatory and specialist effectiveness differ over the three time periods studied. Volatility and measures of trade activity increase significantly around trading halts, and return to lower levels in less than two days after the resumption of trading. The number of trades is a good measure of the information flow associated with informed trading pre-halt and the price discovery process post-halt.     

Nasdaq Trading Halts: The Impact of Market Mechanisms on Prices, Trading Activity, and Execution Costs

We study the effects of alternative halt and reopening procedures on prices, transaction costs, and trading activity for a sample of news-related trading halts on Nasdaq. For intraday halts that reopen after only a five-minute quotation period, inside quoted spreads more than double following halts and volatility increases to more than nine times normal levels. In contrast, halts that reopen the following day with a longer 90-minute quotation period are associated with insignificant spread effects and significantly dampened volatility effects. These results are consistent with the hypothesis that increased information transmission during the halt results in reduced posthalt uncertainty.     

The information content of trading halts

We investigate the impact of trading halts of NYSE-listed stocks on informationally related securities that continue to trade during the period of the halt. Informational relationships are established for companies in the same four-digit SIC industry based on the correlation of returns, volume, volatility, and the adverse selection components of spreads. We find a significant liquidity impact on informationally related securities with spreads and price impact of trades having substantial increases. However, we also find that quoted depths, the number of trades, and trade volume significantly increase. Our results are consistent with the trading halt model of Spiegel and Subrahmanyam [2000. Asymmetric information and news disclosure rules. Journal of Financial Intermediation 9, 363–403] and with the informed trading model of Tookes [2008. Information, trading, and product market interactions: cross-sectional implications of informed trading. Journal of Finance 63, 379–413]. In addition, our results indicate that there is a common liquidity response of informationally related securities to firm-specific trading halts.     

The Effect of Trading Halts on the Speed of Price Discovery

Trading halts are aimed at reducing information asymmetry by granting investors the opportunity to reassess trades upon arrival of new, substantial information. This study is the first to address the efficiency of the price discovery process with respect to time, i.e., the speed of adjustment to new information. A unique database allow us to conduct an event study analysis and measure the impact of trading halts on price discovery while controlling for content, operational and value effects. We find that information dissemination following trading halts is over 40% faster and that abnormal trading activity is positively related to the speed of price adjustment.     

A股市场新版停牌制度实施效果的实证研究

论文使用沪深A股市场2008年10月1日-2011年11月1日的停复牌和交易数据,通过事件研究法分析了不同类型停牌的异常收益率,以信息释放和价格发现效率为标准评价新版停牌制度.研究表明：例行停牌信息含量偏少且阻碍了交易的连续性;异常波动停牌有效地降低了股票的平均异常收益率,但坏消息复牌后价格调整速度相对较慢;重大事项停牌存在严重的“消息泄露”,仅能起到事后警示的作用,同时坏消息复牌后的价格发现效率较低,重大事项停牌并不理想.     

A股市场新版停牌制度实施效果的实证研究

本文使用A股市场2008年10月1日至2011年11月1日的停复牌和交易数据,通过构造与“停牌日”样本相对应的“非停牌日”样本,利用多元回归分析了不同类型停牌的异常交易行为,以信息释放和价格发现效率为标准评价新版停牌制度。研究表明：例行停牌阻碍了交易的连续性;异常波动停牌虽放大了复牌日股票的成交量和波动率．但有效地降低了股票的异常收益率,同时坏消息复牌后价格调整速度相对较慢;重大事项停牌存在严重的“消息泄露”,仅能起到事后警示的作用,复牌并没有消除信息的不确定,同时坏消息复牌后的价格发现效率较低。     

Order Flow and Liquidity around NYSE Trading Halts

We study order flow and liquidity around NYSE trading halts. We find that market and limit order submissions and cancellations increase significantly during trading halts, that a large proportion of the limit order book at the reopen is composed of orders submitted during the halt, and that the market-clearing price at the reopen is a good predictor of future prices. Depth near the quotes is unusually low around trading halts, though specialists and/or floor traders appear to provide additional liquidity at these times. Finally, specialists appear to 'spread the quote' prior to imbalance halts to convey information to market participants.     

The complexity of price discovery in an efficient market: the stock market reaction to the Challenger crash

We provide evidence on the speed and accuracy of price discovery by studying stock returns and trading volume surrounding the crash of the space shuttle Challenger. While the event was widely observed, it took several months for an esteemed panel to determine which of the mechanical components failed during the launch. By contrast, in the period immediately following the crash, securities trading in the four main shuttle contractors seemingly singled out the firm that manufactured the faulty component. We show that price discovery occurred without large trading profits and that much of the price discovery occurred during a trading halt of the firm responsible for the faulty component. Finally, although we document what are arguably quick and accurate movements of the market, we are unable to detect the actual manner in which particular informed traders induced price discovery.     

On the Magnet Effect of Price Limits

The ‘magnet’ or ‘gravitational’ effect hypothesis asserts that, when trading halts are rule‐based, investors concerned with a likely impediment to trade advance trades in time. This behaviour actually pushes prices further towards the limit. Empirical studies about the magnet effect are scarce, most likely because of the unavailability of data on rule‐based halts. In this paper, we use a large database from the Spanish Stock Exchange (SSE), which combines intraday stock specific price limits and short‐lived rule‐based call auctions to stabilise prices, to test this hypothesis. The SSE is particularly well suited to test the magnet effect hypothesis since trading halts are price‐triggered and, therefore, predictable to some extent. Still, the SSE microstructure presents two particularities: (i) a limit‐hit triggers an automatic switch to an alternative trading mechanism, a call auction, rather than a pure halt; (ii) the trading halt only lasts 5 minutes. We find that, even when prices are within a very short distance to the price limits, the probability of observing a limit‐hit is unexpectedly low. Additionally, prices either initiate reversion (non limit‐hit days) or slow down gradually (limit‐hit days) as they come near the intraday limits. Finally, the most aggressive traders progressively become more patient as prices approach the limits. Therefore, both the price patterns and the trading behaviour reported near the limits do not agree with the price limits acting as magnetic fields. Consequently, we conclude that the switching mechanism implemented in the SSE does not induce traders to advance their trading programs in time.     

Market Quote and Spread Component Cost Behavior Around Trading Halts for Stocks Interlisted on the Montreal and Toronto Stock Exchanges

We use intraday quotes and transactions on halted securities that interlisted on the Toronto Stock Exchange and Montreal Exchange to decompose the spreads and examine quote depths. Our results show that order‐processing costs differ for trading halts at the open compared to halts during the rest of the trading day. We find that the adverse‐selection cost component of the spread is higher around trading halts and highest at the trading halt. We also find that print‐media articles that appear within the four‐day window centered on the halt have no impact on the time‐series behavior of the spread cost.     

The impact of trading halts on liquidity and price volatility: Evidence from the Australian Stock Exchange

This study examines market behaviour around trading halts associated with information releases on the Australian Stock Exchange, which operates an open electronic limit order book. Using the Lee, Ready and Seguin (1994) pseudo-halt methodology, we find trading halts increase both volume and price volatility. Trading halts also increase bid-ask spreads and reduce market depth at the best-quotes in the immediate post-halt period. The results of this study imply that trading halts impair rather than improve market quality in markets that operate open electronic limit order books.     

Volume,Volatility, and New York Stock Exchange Trading Halts

Trading halts increase, rather than reduce, both volume and volatility. Volume (volatility) in the first full trading day after a trading halt is 230 percent (50 to 115 percent) higher than following “pseudohalts”: nonhalt control periods matched on time of day, duration, and absolute net-of-market returns. These results are robust over different halt types and news categories. Higher posthalt volume is observed into the third day while higher posthalt volatility decays within hours. The extent of media coverage is a partial determinant of volume and volatility following both halts and pseudohalts, but a separate halt effect remains after controlling for the media effect.     

The determinants of price discovery: Evidence from US-Canadian cross-listed shares

We examine the determinants of price discovery for Canadian firms cross-listed on the main US stock exchanges over the period 1996–2011. Sampling at a one-minute frequency, we compute Gonzalo and Granger Component Shares (CS) and employ a system GMM approach to control for persistence in price discovery and endogeneity between CS and its determinants. We find that price discovery is highly persistent and that there is strong evidence of simultaneity between CS and its determinants. We conclude that lower relative spreads and higher relative trading activity increase an exchange’s contribution to price discovery. We also document that it is small trades that drive price discovery, particularly since the introduction of decimalization.     

Surprises,sentiments, and the expectations hypothesis of the term structure of interest rates

Between 2005 and 2009, we document evident time-varying credit risk price discovery between the equity and credit default swap (CDS) markets for 174 US non-financial investment-grade firms. We test the economic significance of a simple portfolio strategy that utilizes fluctuation in CDS spreads as a trading signal to set stock positions, conditional on the CDS price discovery status of the reference entities. We show that a conditional portfolio strategy which updates the list of CDS-influenced firms over time, yields a substantively larger realized return net of transaction cost over the unconditional strategy. Furthermore, the conditional strategy’s Sharpe ratio outperforms a series of benchmark portfolios over the same trading period, including buy-and-hold, momentum and dividend yield strategies.     

交易限制与股票市场定价效率——基于创业板涨跌幅限制放宽的准自然实验研究

本文基于2020年8月24日创业板涨跌幅限制由10%扩大到20%这一政策变化建立准自然实验,从市场层面与公司事件层面探讨交易限制放宽的外生冲击下市场定价效率的变化。研究发现,涨跌幅限制放宽政策实施后,股票价格能更灵敏地反映公开市场信息,更多地包含公司层面特质信息,整体市场定价效率显著提升。进一步研究表明,涨跌幅限制放宽有效缓解了交易干扰问题,避免了过度交易行为延后,缓解了波动性外溢与价格发现延迟。异质性分析表明,无论是市场层面定价效率改善,还是事件层面波动性外溢、价格发现推迟与交易干扰问题的缓解,均在低信息透明度公司中更为显著。本文研究发现为验证涨跌幅限制会抑制股票市场定价效率的理论提供了直接经验证据,同时为推广完善市场化交易制度提供了有益启示。     

Short-sale refinancing and price adjustment speed to bad news: Evidence from a quasi-natural experiment in China

Short selling may accelerate stock price adjustment to negative news. However, the literature provides mixed evidence for this prediction. Using short-sale refinancing and a staggered difference-in-differences (DID) model, this paper explores the effect of short selling on stock price adjustment. Our results show that (1) short-sale refinancing improves the speed of stock price adjustment to negative news. This result holds after we control for endogeneity. (2) The positive relationship between short-sale refinancing and stock price adjustment speed is significant in subsamples of stocks with higher earnings management or lower accuracy of analyst forecasts, indicating that firms with more opaque information are more likely to be targeted by short sellers. In subsamples of stocks with a higher ownership concentration or lower ownership by institutional investors, short selling is more likely to increase the speed of stock price adjustment, indicating that ownership structure may influence negative news mining. (3) As short-sale refinancing exacerbates the absorption of bad news by stock prices, it increases crash risk. This study enriches the research on the economic consequences of short selling and provides empirical evidence supporting regulations on short selling in China.     

卖空机制能够约束内部人减持吗？——基于融资融券制度的经验证据

本文以我国放松卖空管制为视角,探究其对内部人减持的影响。研究表明,卖空机制能够抑制企业内部人减持行为。机制分析发现,卖空对内部人减持的抑制作用是通过缓解股权高溢价实现的。进一步研究表明,卖空能够抑制大股东、董事以及管理层减持,但对监事减持无影响;卖空能够降低内部人减持的获利程度,并且在内部人减持动机更大时,对内部人减持的抑制作用更强;卖空通过约束内部人减持提升了股票定价效率,还有助于降低内部人增持行为。本文的研究结论丰富了卖空和内部人减持领域的文献,并对政府部门完善制度设计具有启示意义。     

Informed Trading in Stock and Option Markets

We investigate the contribution of option markets to price discovery, using a modification of Hasbrouck's (1995) "information share" approach. Based on five years of stock and options data for 60 firms, we estimate the option market's contribution to price discovery to be about 17% on average. Option market price discovery is related to trading volume and spreads in both markets, and stock volatility. Price discovery across option strike prices is related to leverage, trading volume, and spreads. Our results are consistent with theoretical arguments that informed investors trade in both stock and option markets, suggesting an important informational role for options.     

Intraday trading halts in the Nikkei futures market

The Osaka Securities Exchange (OSE) halts Nikkei 225 index-futures trading when the next transaction is to take place at a price more than ¥30 (prior to February 1994) or ¥60 (from February 1994) away from the previous trading price. This paper examines the efficacy of the intraday price limit rule in terms of price discovery, liquidity and volatility. We also include transaction data from the Singapore International Monetary Exchange (SIMEX) where Nikkei futures are traded simultaneously. The intraday price limit rule generally appears to be ineffective in reducing volatility and avoiding price jumps, at least partly because OSE traders have access to the alternative market at SIMEX.     

THE OVER-THE-COUNTER MARKET AND NEW YORK STOCK EXCHANGE TRADING HALTS

This paper examines the over-the-counter (OTC) market activities for stocks temporarily suspended by the New York Stock Exchange (NYSE). Unlike previous studies, we use transaction-to-transaction data on the NASDAQ during NYSE trading halts to investigate the price adjustment process between market equilibria. The evidence indicates that while being halted by the NYSE, the same stocks have exhibited significantly greater volatility in the OTC market. Since the volatile price movement is mainly random and provides no arbitraging opportunities for the OTC market traders, we do not find support for the proposal that trading halts should be mandatory for all trading locations.