Short-term Market Reaction after Trading Halts in Chinese Stock Market

TL;DR

This study analyzes the immediate market reactions to different types of trading halts in the Chinese stock market, revealing distinct patterns and relaxation behaviors for absolute return, volume, and bid-ask spread based on halt type and reason.

Contribution

It provides a detailed high-frequency analysis of market dynamics following trading halts, highlighting differences across halt types and reasons in the Chinese stock market.

Findings

Intraday halts show sharp peaks and power law relaxation in market variables.

Inter-day halts have larger relaxation exponents, indicating higher effectiveness.

Positive events cause larger reactions in intraday and one-day halts, while negative events dominate inter-day halts.

Abstract

In this paper, we study the dynamics of absolute return, trading volume and bid-ask spread after the trading halts using high-frequency data from the Shanghai Stock Exchange. We deal with all three types of trading halts, namely intraday halts, one-day halts and inter-day halts, of 203 stocks in Shanghai Stock Exchange from August 2009 to August 2011. We find that absolute return, trading volume, and in case of bid-ask spread around intraday halts share the same pattern with a sharp peak and a power law relaxation after that. While for different types of trading halts, the peaks' height and the relaxation exponents are different. From the perspective of halt reasons or halt duration, the relaxation exponents of absolute return after inter-day halts are larger than that after intraday halts and one-day halts, which implies that inter-day halts are most effective. From the perspective of price trends, the relaxation exponents of excess absolute return and excess volume for positive events are larger than that for negative events in case of intraday halts and one-day halts, implying that positive events are more effective than negative events for intraday halts and one-day halts. In contrast, negative events are more effective than positive events for inter-day halts.