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The Effect of Trading Halts on the Speed of Price Discovery

Abstract

Trading halts are aimed at reducing information asymmetry by granting investors the opportunity to reassess trades upon arrival of new, substantial information. This study is the first to address the efficiency of the price discovery process with respect to time, i.e., the speed of adjustment to new information. A unique database allow us to conduct an event study analysis and measure the impact of trading halts on price discovery while controlling for content, operational and value effects. We find that information dissemination following trading halts is over 40% faster and that abnormal trading activity is positively related to the speed of price adjustment.

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Correspondence to Haim Kedar-Levy.

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Hauser, S., Kedar-Levy, H., Pilo, B. et al. The Effect of Trading Halts on the Speed of Price Discovery. J Finan Serv Res 29, 83–99 (2006). https://doi.org/10.1007/s10693-005-5109-0

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  • DOI: https://doi.org/10.1007/s10693-005-5109-0

Key words

  • Speed of price discovery
  • trading halts
  • market efficiency