Trading Halts and Information Asymmetry

Abstract:     
Trading halts, such as circuit breakers and sidecars, have their proponents and opponents in both academia and practice. The benefit of these mechanisms is a highly debated subject in finance. Although many empirical studies have focused on the effect of trading halts on volatility and trading activity, little is known about the effect of trading halts on information asymmetry of markets. To address this issue, we analyze the effect of sidecars on information asymmetry using intraday data of the Korean securities market. Specifically, the effect of program trading halts in the spot market and in the futures market are explored. Sidecars are found to be ineffective at controlling the asymmetric information levels around large market movements. This paper is the first to investigate the effects of trade control mechanisms on asymmetric information.

Number of Pages in PDF File: 44

Keywords: Asymmetric information, sidecar, trading halts, Korea, KOSPI, market microstructure, options, futures

JEL Classification: G12, G13, C14, G22

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