Anatomy of a Market Failure: NYSE Trading Suspensions (1974-1988)

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.Trading halts; Market resiliency; Liquidity; Inventory control; Adverse selection