Why Can’t I Trade? Exchange Discretion in Calling Halts

54 Pages Posted: 14 Jul 2017 Last revised: 25 Aug 2019

See all articles by Nathan T. Marshall

Nathan T. Marshall

University of Colorado at Boulder - Department of Accounting

Jonathan L. Rogers

University of Colorado at Boulder - Leeds School of Business

Sarah L. C. Zechman

University of Colorado at Boulder - Leeds School of Business

Date Written: August 23, 2019

Abstract

Stock exchanges are an important information intermediary that affect how information about firms enters price. Individual stock trading halts are a key tool (often exercised at the exchanges’ discretion) to prevent extraordinary price volatility in the presence of new information, however, the decision making behind the halt remains a “mystery” (WSJ, 2018). Using both firm-quarter and 8-K samples, we investigate how exchanges use discretion and whether the use of discretion alters the effectiveness of the halts. Between 2012 and 2015 halts are associated with large price movements (on-average 11%) and occur frequently with 97% of trading days having five or more halts. Our findings suggest that Nasdaq has a greater propensity to call halts than NYSE, ceteris parabis. Further, halts reflect the preferences of listed firms as opposed to simply the stated objectives of the exchanges (i.e., minimizing excess volatility and trades at off-equilibrium prices). Specifically, we find halts are less likely for (i) good news than bad, (ii) firms with opportunistic CEO traders, and (iii) firms with low short interests. We also find some evidence that CEO characteristics are associated with halt outcomes. Concerning halt effectiveness, we find the level of unexplained halt discretion is positively associated with both small halt returns and larger post-halt stock return reversals, suggesting halts with more discretion are less effective.

Suggested Citation

Marshall, Nathan T. and Rogers, Jonathan L. and Zechman, Sarah L. C., Why Can’t I Trade? Exchange Discretion in Calling Halts (August 23, 2019). Available at SSRN: https://ssrn.com/abstract=3000703 or http://dx.doi.org/10.2139/ssrn.3000703

Nathan T. Marshall (Contact Author)

University of Colorado at Boulder - Department of Accounting ( email )

419 UCB
Boulder, CO 80309-0419
United States

Jonathan L. Rogers

University of Colorado at Boulder - Leeds School of Business ( email )

419 UCB
Boulder, CO 80309-0419
United States

Sarah L. C. Zechman

University of Colorado at Boulder - Leeds School of Business ( email )

Boulder, CO 80309-0419
United States

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