Empirical Evidence on the Role of Trading Suspensions in Disseminating New Information to the Capital Market

26 Pages Posted: 3 Oct 2006

See all articles by Rezaul Kabir

Rezaul Kabir

University of Twente - Department of Finance and Accounting

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Abstract

This paper examines the effect of temporarily suspending the trading of exchange-listed individual stocks. We evaluate whether regulatory authorities can successfully use the mechanism of trading suspension in forcing companies to disclose new and material information to the capital market. Previous studies on trading suspensions mainly concentrate on North-American stock markets and find conflicting results. This study utilizes a new data set comprising of firms listed on Euronext Brussels an important segment of Europe's leading cross-border exchange. Our results show that suspension is indeed an effective means of disseminating new information. Stock prices adjust completely and instantaneously to the new information released during trading suspensions. We also observe a significant increase in trading volume with the reinstatement of trading. On the other hand, we do not find support for the claim that trading suspensions increase the volatility of stock prices. Overall, our results show the efficacy of trading suspensions in disseminating new information.

Suggested Citation

Kabir, Rezaul, Empirical Evidence on the Role of Trading Suspensions in Disseminating New Information to the Capital Market. Journal of Business Finance & Accounting, Vol. 33, No. 7-8, pp. 1142-1167, September/October 2006. Available at SSRN: https://ssrn.com/abstract=934613 or http://dx.doi.org/10.1111/j.1468-5957.2006.00597.x

Rezaul Kabir (Contact Author)

University of Twente - Department of Finance and Accounting ( email )

Faculty of Behavioral, Management & Social Science
P. O. Box 217
Enschede, 7500 AE
Netherlands
+31 53 489 4512 (Phone)
+31 53 489 2159 (Fax)

HOME PAGE: http://https://people.utwente.nl/r.kabir

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