Trading halts and the quality of exchange traded markets

This thesis investigates the effects of intraday halts in trading on the market quality of the Australian Stock Exchange and the Sydney Futures Exchange. This is the first such examination of halts on the Australian marketplace. This thesis contributes to earlier research in two ways. Firstly, more refined measurement of different characteristics of halts is undertaken in order to better control for factors which have confounded prior research. Secondly, the thesis examines changes in halt practices in Australia. Analysis of these changes provides a more direct and natural examination of halts. Earlier studies have used various proxies to estimate what normal trading behaviour would be if halts were removed. The evidence presented here indicates that trading around halts is characterised by excess volatility and increased bid—ask spreads, both of which are indicative of greater uncertainty. It is concluded that halts are detrimental to the quality of a market due to a loss of price discovery. This conclusion is robust to the presence of information, whether halts are anticipated, the trading environment, and the use of particular reopening mechanisms