Anatomy of a market failure: NYSE trading suspensions (1974-1988)

A cross-sectional analysis of all trading suspensions that occurred during the period 1974-1988 in the New York Stock Exchange reveals that. though the desire to maintain price continuity remains an important motivation to suspend trade, inventory-imbalance fears are pronounced for large firms. Adverse-selection concerns afflict all news-related suspensions irrespective of firm size. Furthermore, we find substitutability among the various dimensions of liquidity: Although large-cap stocks have lower bid-ask spreads, they halt more often. A time series analysis shows that the resiliency of the exchange-its ability to absorb severe volatility shocks-has improved in this period.