What is it about?
A cross-sectional analysis of all trading suspensions that occurred during the period 1974-1988 in the New York Stock Exchange reveals that though the desire to maintain price continuity remains an important motivation to suspend trade, inventory imbalance fears are pronounced for large firms. Adverse selection concerns afflict all news related suspensions irrespective of firm size. Further, we find substitutability amongst the various dimensions of liquidity: while large cap stocks have lower bid-ask spreads, they halt more often. A time-series analysis shows that the resiliency of the exchange -- its ability to absorb severe volatility shocks -- has improved in this period.
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Why is it important?
This is the first large scale study of trading halts in the NYSE. It shows that the classical reasons for refusing to trade -- trading with more informed people or severe expected inventory imbalances -- exist in the data.
Perspectives
This was the paper where I learnt how to code and do empirical research.
Professor Utpal Bhattacharya
Hong Kong University of Science and Technology
Read the Original
This page is a summary of: Anatomy of a Market Failure: NYSE Trading Suspensions (1974-1988), Journal of Business and Economic Statistics, April 1998, JSTOR,
DOI: 10.2307/1392577.
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