Trading halts and the advantage of institutional investors: Historical evidence from Borsa Istanbul

Abstract

The effects and effectiveness of trading halts remain controversial among academics and regulators. This paper provides historical evidence regarding the efficacy of trading halts from a leading emerging market with a unique microstructure, Borsa Istanbul (Istanbul Stock Exchange), by examining the return, volatility, and volume behavior around news-initiated trading halts using trade-by-trade data and 15-min intervals from January 1999–April 2003. It also investigates, for the first time, the trading behavior of different types of investors, such as individuals, mutual funds, and brokerage houses, around trading halts. Findings indicate that most of the new information is absorbed by prices within 15 min following the resumption of trading after a halt. The reaction of investors to bad news is slower and stronger than good news. Despite halts, institutional investors employ the price advantage of new information during the cessation period ahead of individual investors utilizing better timing in trading after the halts. Institutional investors systematically buy and sell at more favorable prices around halts than individual investors. Finally, overall evidence suggests that trading halts are effective in the dissemination of valuable information and play an important role in enhancing the efficiency of the price discovery mechanism.