Market Reactions to the Hong Kong Trading Suspensions: Mandatory versus Voluntary

Abstract

This paper investigates the market reactions to regulator-initiated (mandatory) suspension and issuer-initiated (voluntary) suspension on the Stock Exchange of Hong Kong. It is found that there is substantial devaluation of the stocks during either suspension, and both the variance and trading volume are higher in the post-suspension period than in the pre-suspension period. However, the changes in value and variance are sensitive to the reason for the suspension. The evidence shows that mandatory suspensions are more effective than voluntary suspensions in disseminating information, although both suspensions may not effectively ease unusual volatility immediately. Copyright Blackwell Publishers Ltd 1998.

What Makes Circuit Breakers Attractive to Financial Markets? A Survey

“…Second, a trading suspension is either ordered by a regulatory body or requested by a listed company; these issuer-initiated suspensions make up more than 90% of all trading suspensions in Hong Kong. Wu (1998) finds that variance and trading volume are higher in the post-suspension period than in the presuspension period on the SEHK, which suggests that suspensions do not immediately ease unusual volatility or trading activity. Kryzanowski and Nemiroff (1998) investigate the price discovery process around trading halts on the Montreal Exchange using trade-by-trade data and find that volatility and trading activity increase significantly around trading halts but return to lower levels less than two days after the resumption of trading.…”

“…Second, a trading suspension is either ordered by a regulatory body or requested by a listed company; these issuer‐initiated suspensions make up more than 90% of all trading suspensions in Hong Kong. Wu (1998) finds that variance and trading volume are higher in the post‐suspension period than in the pre‐suspension period on the SEHK, which suggests that suspensions do not immediately ease unusual volatility or trading activity.…”

“…Although the existing literature on trading halts is mainly based on the U.S. market, Wu (1998) uses trading suspensions on the Stock Exchange of Hong Kong (SEHK) to evaluate their effectiveness in terms of the price‐discovery process, changes in return volatility, and changes in trading volume. The SEHK suspensions differ from NYSE trading halts in two ways.…”

Is China’s securities regulatory agency a toothless tiger? Evidence from enforcement actions

“…They observed that both the price variance and trading volume are substantially higher than normal in the immediate pre-suspension period, and this trend continues in the immediate post-suspension period. Using data from Hong Kong, Wu (1998) finds that there are significant negative returns during either regulator-initiated trading suspensions or issuer-initiated trading suspensions from the stock exchange, and both the price variance and trading volume are higher in the post-suspension period than in the pre-suspension period. However, mandatory suspensions are more effective than voluntary suspensions in disseminating information.…”

Circuit breakers as market stability levers: A survey of research, praxis, and challenges

“…In Montreal Stock Exchange, Kryzanowski and Nemiroff () find evidence of significant volatility spillover. In Hong Kong, Wu () compares mandatory versus discretionary suspension mechanisms and finds volatility to be higher for mandatory halts. The same was found in Singapore Stock Exchange by Tan and Yeo (), who further reported elevated volatility after both good and bad news suspensions.…”