Nasdaq Trading Halts: The Impact of Market Mechanisms on Prices, Trading Activity, and Execution Costs

Authors

  • William G. Christie,

  • Shane A. Corwin,

  • Jeffrey H. Harris

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    • Christie is from the Owen Graduate School of Management, Vanderbilt University. Corwin is from the Mendoza College of Business, University of Notre Dame. Harris is from the College of Business and Economics, University of Delaware. The authors are grateful to Rick Green (the editor) and an anonymous referee for their comments. The authors also thank Jeff Bacidore, Robert Battalio, Ken Kavajecz, Gideon Saar, Paul Schultz, Sunil Wahal, participants at the National Bureau of Economic Research Microstructure Conference and the Western Finance Association meetings, and seminar participants at Nasdaq, the University of Notre Dame, and George Washington University for their comments. Tim McCormick of the NASD deserves special thanks for assisting with the data and offering his expert advice. Christie acknowledges the financial support of the Dean's Fund for Faculty Research at the Owen Graduate School of Management and the Financial Markets Research Center at Vanderbilt University. Corwin acknowledges financial support from the Terry College of Business at the University of Georgia through a Sanford-Terry research grant. A portion of this work was completed while Harris was a Visiting Economist at the Securities and Exchange Commission. The Securities and Exchange Commission, as a matter of policy, disclaims responsibility for any private publication or statement of any SEC employee or Commissioner. This paper expresses the views of the authors alone and does not necessarily reflect the views of the Commission, the Commissioners, or other members of the staff. Nasdaq provided some essential data. All remaining errors are the joint responsibility of the authors.

ABSTRACT

We study the effects of alternative halt and reopening procedures on prices, transaction costs, and trading activity for a sample of news-related trading halts on Nasdaq. For intraday halts that reopen after only a five-minute quotation period, inside quoted spreads more than double following halts and volatility increases to more than nine times normal levels. In contrast, halts that reopen the following day with a longer 90-minute quotation period are associated with insignificant spread effects and significantly dampened volatility effects. These results are consistent with the hypothesis that increased information transmission during the halt results in reduced posthalt uncertainty.

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