Abstract

This thesis, comprised of three essays, concentrates on price discovery and the properties associated with transactions and quotes surrounding trading halts on the Montreal (ME) and Toronto Stock Exchanges (TSE). Trading halts are imposed by exchanges on listed securities, namely; in response to informed trading at the expense of uninformed traders, in order to force companies to comply with proper and quick news dissemination, and in response to large depth imbalances. Since the maintenance of a fair and orderly market is the desired mandate of stock exchanges, the successful implementation of trading halts should reduce informational asymmetry surrounding specific announcements. The first essay examines price discovery on the ME. It extends previous literature by examining returns, volatilities and trade activity over time and finds that trading halts are effective in disseminating news in a fair and orderly manner. Although most adverse information effects subside within a few hours of the resumption of trading, trading haft effectiveness varies somewhat over time. Volatility and trading activity preceding the trading haft are quickly impounded into prices post-halt. The second assay investigates trade activity, direction, spreads, depths and volatility for stocks interlisted on the ME and TSE. Results indicate that asymmetric information impacts on both the market and the specialist covering the hafted security. Specialists adjust their supply of liquidity around the trading halts and informed traders are less active prior to the trading halts. Although trade activity, spreads and volatility increase after trading resumes, only trade activity partially remains at its new higher level permanently. The final essay decomposes the components of the bid/ask spread and examines specialist behaviour and quote/transaction revisions for stocks interlisted on the ME and TSE. Results indicate that specialists attempt to clear themselves of unwanted inventories accumulated around bad news announcements, by adjusting spreads and depths intraday to quickly dispose of unwanted inventory. Although asymmetric information is the largest component of the quoted spread around trading halts, severe biases are uncovered in component estimation. These are attributed to the use of serial covariance estimates in component estimation for some of the models currently used in the literature.