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

:  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. Previ...

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Bibliographic Details
Published in:Journal of business finance & accounting 2006-09, Vol.33 (7-8), p.1142-1167
Main Authors: Engelen, Peter-Jan, Kabir, Rezaul
Format: Article
Language:English
Subjects:
Business studies
Capital market
Capital markets
Cross border transactions
Data analysis
Empirical research
Europe
Finance
information disclosure
Information dissemination
Management science
regulation
Rescission
Securities markets
Stock exchange
stock market
Stock prices
Studies
Trade models
trading halt
trading suspension
Trading suspensions
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Summary::  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.
ISSN:0306-686X
1468-5957
DOI:10.1111/j.1468-5957.2006.00597.x