Why can’t I trade? Exchange discretion in calling halts

60 Pages Posted: 14 Jul 2017 Last revised: 27 Aug 2018

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 24, 2018

Abstract

Stock exchanges exercise discretion when calling individual stock trading halts though the decision making behind the halt remains a “mystery” (WSJ, 2018). 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. Given their importance, we investigate how exchanges use this discretion and whether the use of discretion alters the effectiveness of the halts. Our findings suggest halts reflect the preferences of exchange constituents 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 24, 2018). 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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