THE EFFECT OF TRADING HALTS ON EXCESS RETURNS DURING PERIODS OF SYSTEM OVERLOAD

After the stock market crash in October 1987, numerous changes and modifications occurred, including the adoption of circuit breakers, which halt arbitrage trading for various lengths of time when the market moves more than specified amounts. Such market-wide trading halts are now popularly felt to...

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Bibliographic Details
Published in:Review of financial economics 1992-04, Vol.1 (2), p.1-16
Main Authors: Tanner, J. Ernest, Pritchett, Jonathan B.
Format: Article
Language:English
Subjects:
Analysis
Capital market
Economic models
Hypotheses
Rate of return
Securities trading
Stock exchanges
Stock market crashes
Studies
Volatility
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Summary:After the stock market crash in October 1987, numerous changes and modifications occurred, including the adoption of circuit breakers, which halt arbitrage trading for various lengths of time when the market moves more than specified amounts. Such market-wide trading halts are now popularly felt to have had significant effects on reducing the extremes of market price volatility. This issue was examined using a sample of NASDAQ and NYSE (New York Stock Exchange) securities trading on October 19, 1987-October 20, 1987. The results indicate that stocks which were delayed in opening experienced significantly more abnormal returns on the open than would have been expected to occur had they been opened without a delay. The evidence is not consistent with the hypothesis that trading halts will increase market efficiency and help produce a fair and orderly market.
ISSN:1058-3300
1873-5924
DOI:10.1002/j.1873-5924.1992.tb00545.x