N°23-62: The Chinese Trading Halt Puzzle

Chinese firms have the right to initiate trading halts with 42% of halts occurring after a price increase. We hypothesize that the only reason for halts to occur after a price rise is to increase the information in price vis-a-vis increasing the signal to noise ratio. We find that this ratio is negatively associated with the likelihood of a halt. However, this option increases the cost of capital by 117 basis points. We show that price non-synchronicity, institutional ownership, accounting and microstructure variables predict a trading halt and explain the positive CARs after a halt. Halts attract mutual funds.