Evaluating Market Supervision Through an Overview of Trading-Halt in the Portuguese Stock Market

In this paper we analyse security trading-halts on the Portuguese capital market between 1992 and 1999. The study aims to measure the goodness of trading-halts imposed by market authorities as well as its timing ability on both interrupting and restart trading. A sample of 54 equities which trading has been interrupted from some hours to some days from 1992 to 1999 was collected. Then we used stock price returns and volatility to compare the periods before with after the trading halt. We started by testing significance of differences among variables for pre and posthalt periods. Afterwards a GARCH (1,1) model, containing two additive dummy variables on the intercept term of the variance equation was applied as another tool to complement the analysis. We found that justification for trading halts tend to increase as sample size increases, meaning that supervisory authorities tend to spot better the dominant changes. However this capacity for halting trading has shown a significant increase recently. When very short time sampling periods are used we found weaker justifications for halting. We also found a GARCH (1,1) model useful as a more sensitive instrument on justifying trading halts and a way to complete the analysis of volatility changes. In terms of timing we found that market authorities seem to be most of the times retarded when imposing trading halts and anticipated when authorising restart trading. This gives some arguments to those that oppose to trading halts