The Role of Trading Halts in Monitoring a Specialist Market

Roger M. Edelen, Simon Gervais
2001 Social Science Research Network  
providing helpful comments and suggestions were Maureen O'Hara, two anonymous referees and seminar participants at the Abstract When a collection of specialists organize as an exchange, each can reap net private benefits at the expense of the exchange by quoting a privately optimal pricing schedule. Coordination makes all specialists and customers better off, but requires a system of monitoring and punishment, which breaks down when information asymmetries between the exchange and a specialist
more » ... re high. The specialist may then seek a temporary trading halt to alleviate unjustified punishment, or the exchange may halt trading to prevent the quoting of damaging privately optimal pricing schedules. We test this theory on a sample of NYSE halts. As predicted, we find a significant increase in estimated information asymmetry immediately preceding trading halts.
doi:10.2139/ssrn.262280 fatcat:tkuf65f6vfh53dmiyjru3a2e5m