Halts for M&A

A trading halt occurs when the trading of specific securities stops for a period of time in the stock exchange. The halt varies and can last up to an hour but it is not limited to that. It mainly occurs when a publicly listed company is about to release significant information about itself (Baker & Kiymaz, 2013). The halt is mainly meant to have a significant influence on mergers and acquisition transactions such as the related financial wealth of a company, a major corporate business deal like restructuring, the positive and the negative information and the key changes in management (Baker & Kiymaz, 2013). The halt of the specific securities gives an opportunity to the investors to review the news release and make a proper judgment as well as reviewing its impact. The halt is also meant to a certain the uncertain exchange of the securities of the merging and the companies that are been acquired in order to meet the market's listing standards (Baker & Kiymaz, 2013).

By considering the returns, volume and volatility behavior there are advantages and disadvantages of trading halts for the publicly listed companies. The international stock markets have witnessed efficiency since the initiation of the trading halts as there has been a change in trading behavior by the investors. One of the advantages is that the information released during the trading halt is usually absorbed by the prices within the first fifteen minutes. There has also been a slower and a stronger rate of reaction by the investors in relation to bad news than the good news (Baker & Kiymaz, 2013). There have also been a price discovery mechanisms due to the numerous adjustment brought about by the trading halts. Trading halts have also been disadvantageous in that it affects the trading volumes and has a negative effect on returns that results to lower returns due to longer halts periods (Baker & Kiymaz, 2013).

Reference

Baker, H. K., & Kiymaz, H. (2013). Market microstructure in emerging and developed markets. Hoboken, New Jersey : John Wiley & Sons, Inc