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.
| 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): |  Deutsches Urheberrecht |
