How effective are trading pauses?

  • 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.

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Metadaten
Author:Nikolaus HautschORCiDGND, Ákos Horváth
URN:urn:nbn:de:hebis:30:3-431613
URL:https://www.ifk-cfs.de/fileadmin/downloads/publications/wp/2017/CFS_WP_571.pdf
Parent Title (English):Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 571
Series (Serial Number):CFS working paper series (571)
Publisher:Center for Financial Studies
Place of publication:Frankfurt, M.
Document Type:Working Paper
Language:English
Year of Completion:2017
Year of first Publication:2017
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2017/05/16
Tag:"magnet effect"; liquidity; price discovery; trading pause; volatility
Issue:This Draft: April 2017
Page Number:52
Note:
First Draft: February 2015 ; This Draft: April 2017
HeBIS-PPN:404247040
Institutes:Wirtschaftswissenschaften / Wirtschaftswissenschaften
Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Sammlungen:Universitätspublikationen
Licence (German):License LogoDeutsches Urheberrecht