How effective are trading pauses?

Nikolaus Hautsch and Akos Horvath

No 571, CFS Working Paper Series from Center for Financial Studies (CFS)

Abstract: Exploiting NASDAQ order book data and difference-in-differences methodology, we identify the distinct effects of trading pause mechanisms introduced on U.S. stock exchanges after May 2010. We show that the mere existence of such a regulation constitutes a safeguard which makes market participants behave differently in anticipation of a pause. Pauses tend to break local price trends, make liquidity suppliers revise positions, and enhance price discovery. In contrast, pauses do not have a "cool off" effect on markets, but rather accelerate volatility and bid-ask spreads. This implies a regulatory trade-off between the protective role of trading pauses and their adverse effects on market quality.

Keywords: trading pause; "magnet effect"; price discovery; volatility; liquidity (search for similar items in EconPapers)
JEL-codes: G10 G14 G18 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: How effective are trading pauses? (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:cfswop:571

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