MARKET REACTIONS TO THE HONG KONG TRADING SUSPENSIONS: MANDATORY VERSUS VOLUNTARY.

This article examines the market reactions to the trading suspensions in Hong Kong, China. Trading suspension aims to ensure that all investors have fair access to market information when any drastic change occurs, possibly causing a disorderly market. However, it is a controversial issue as to whether this goal can be realized during abnormal periods. While the existing literature on trading suspension provides evidence for the U.S. markets, few studies have investigated market reactions to trading suspensions outside the U.S. The purpose of this paper is to add new evidence to current literature on trading halts by investigating trading suspensions on the Stock Exchange of Hong Kong (SEHK). Specifically, this paper evaluates the effectiveness of trading suspensions in three aspects: the price discovery process, changes in return volatility and changes in trading volume. Both the SEHK and Securities and Futures Commission have authority to suspend stock trading. According to the SEHK's Rules, the Stock Exchange may suspend dealings in any securities where the following conditions exist.