Peter-Jan Engelen University of Antwerp, Belgium

An Emprcal Assessmen of he Effcency of Tradng Hals o Dssemnae Prce-Sensve Informaon Durng he Openng Hours of a Sock Exchange. The Case of Euronex Brussels Peer-Jan Engelen Unversy of Anwerp, Belgum Absrac Ths paper examnes he effec of emporarly suspendng he radng of exchange-lsed ndvdual socks. I evaluaes wheher regulaory auhores can successfully use he mechansm of radng hals n forcng companes o dsclose new and maeral nformaon o he capal marke. In conras o prevous sudes whch manly concenrae on Norh-Amercan sock markes, hs sudy ulses a daa se comprsng of frms lsed on Euronex Brussels. The resuls show ha suspenson s ndeed an effecve means of dssemnang new nformaon. Sock prces adjus compleely and nsananeously o he new nformaon released durng radng suspensons. We also observe a sgnfcan ncrease n radng volume afer he rensaemen of radng. On he oher hand, we do no fnd any ncrease n sock reurn volaly around radng suspensons. Overall, he resuls confrm he effcacy of radng suspensons n dssemnang new nformaon. JEL-Code: G10, G14, G18 Keywords: nformaon dssemnaon, radng hal, radng suspenson, marke effcency 0.Inroducon Do nvesors care abou he qualy of he fnancal markes n whch hey operae? Alhough an affrmave answer seems obvous and naural, only recenly he so-called law and fnance leraure, whch was naed by he semnal papers of La Pora, Lopez-de-Slanes, Shlefer and Vshny (1997, 1998), nvesgaed he relaonshp beween a counry s legal framework and s fnancal developmen. The law and fnance leraure offers srong emprcal evdence on he mporance of he legal envronmen (marke negry, nvesor proecon) for he developmen of hese markes and economc growh. La Pora e.a. (1997) show ha a good legal envronmen expands he ably of companes o rase exernal fnance hrough eher deb or equy. In s recen proposal of he Marke Abuse Drecve, he European Commsson as well sresses he mporance of an adequae legal framework n order for companes o rase capal 1 : Hgh growh enreprses depend on he effcency and ransparency of fnancal markes n order o rase capal. Indeed, he smooh funconng of fnancal markes and publc confdence n hem are prerequses for susaned economc 1 European Commsson, Explanaory Memorandum, Proposal for a Drecve of he European Parlamen and of he Councl on Insder Dealng and Marke Manpulaon, 30 May 2001, COM(2001) 281 fnal.

2 growh and wealh. The Forum of European Secures Commssons (FESCO) 2 and he Federaon of European Sock Exchanges (FESE) subscrbe o ha saemen as well (see FESCO, 2000, 2001 and FESE, 2000, 2001). Alhough FESE and he European Commsson are boh commed o hghes levels of marke qualy, hey dsagree on he mplemenaon. The European Commsson suppors he dea of a sngle cenral, admnsrave regulaory auhory n each EU Member Sae, whch should be ndependen of he exchanges. Because many exchanges demuualsed fully, confess o a prof move and have become lsed companes hemselves such as Sockholm, Deusche Börse, Euronex and LSE, he European Commsson argues ha such exchanges canno any longer be enrused wh regulaon as hey have a conflc of neres (Arlman, 2001a, 2001b). However, for a sock exchange o be successful n he long erm, mus be able o show ha runs a far and hones marke for all parcpans, oherwse nvesors wll avod radng n such a marke. Or as Arlman (2002) pus : Servng as a qualy marke s her mos mporan brand. Insead of a cenral auhory subsung he supervson of he exchanges, FESE (2001) sresses he complemenary role of he exchanges and her experence and nvesmen n deecon and marke survellance. As he European Commsson defnes marke abuse as a suaon n whch nvesors have used nformaon whch s no publcly avalable o her own advanage, he supervson of ongong dsclosure oblgaons, parcularly o he ad-hoc dsclosure of prce-sensve news, s of crucal mporance n order o promoe marke negry and marke qualy. In hs respec, FESE (2001) parcularly sresses he need for marke knowledge and proxmy and suppors he allocaon of regulaory powers closer o he marke. The alleged benefs of allocang he supervson o he exchange self are: (a) famlary wh he radng sysem and s screenng and flerng algorhms, (b) closer conac wh marke parcpans and (c) more mely acons when marke rregulares are deeced, all of whch are crucal elemens for nsallng radng hals for dssemnang prce-sensve news. Ths emprcal sudy adds o he above debae because examnes wheher an exchange can add value by ensurng marke negry. In parcular, evaluaes he use of radng hals on Euronex Brussels 3 o dssemnae prce-sensve nformaon durng he openng hours of he sock exchange. Pu 2 Now called he Commee of European Secures Regulaors (CESR). 3 Formerly known as he Brussels Sock Exchange (BXS). In 2000 BXS, Amserdam (Amserdam Exchanges) and Pars (ParsBourseSBF) merged o he form he sngle secures marke Euronex.

3 dfferenly, evaluaes wheher a supervson close o he marke can manan an orderly marke. A radng suspenson (also known as radng hal) represens a emporary nerrupon n offcal radng of an ndvdual sock on a sock exchange 4. Auhores usually adop hs regulaory measure o provde nvesors exra me o evaluae newly released nformaon abou a specfc company. I s especally used when here may have been a breach of confdence n relaon o nsde nformaon or marke manpulaon, n whch case companes are requred o dsclose addonal nformaon. Therefore, radng suspensons are sad o be a crucal regulaory and supervsory measure n order o manan a far and orderly marke n whch all nvesors should have smulaneous access on a mely bass o he nformaon hey requre o ake her nvesmen decsons (FESCO, 2001). The desrably of radng suspenson s subjec o debae among regulaors, marke parcpans and academcs. Proponens of radng suspenson argue ha provdes raders exra me o evaluae newly released nformaon so ha no specfc group of nvesors oban an unduly advanage n sock radng. They also argue ha sock prces become more nformave, uncerany s reduced and nvesors are proeced from volale prce movemens. On he oher hand, crcs argue ha radng suspenson smply delays sock prce adjusmens, mposes addonal coss o nvesors who are deprved of radng opporunes and makes an exchange less aracve o nvesors. Ulmaely, s he supervsory auhory ha needs o wegh he benefs of allowng connuous radng agans he desrably of nerposng processes whch afford marke users he opporuny o reassess a changed suaon and o aler her orders accordngly 5. 4 The erm radng hal s ofen used o refer o dfferen knds of regulaory measures. Frs, has o be dsngushed from a crcu breaker whch nvolves a marke-wde hal of radng of all socks because of he movemen of prces (or volumes) beyond pre-se parameers n order o reduce marke volaly (e.g. rule 80B of he NYSE). Besdes marke-wde crcu breakers, resrcons on daly prce varaons of ndvdual fnancal nsrumens also exs, such as he sac and dynamc volaly nerrupons on Euronex (see rule 4404/1 Euronex Rule Book and Euronex Insrucon nr.4-01, Euronex Cash Marke Tradng Manual, Noce nr.2001-3807, 29 Ocober 2001 and 2001-3840, 30 Ocober 2001). Second, has o be dsngushed from lsng suspensons when he supervsory auhory decdes o suspend he lsng of a parcular fnancal nsrumen unl he suaon of non-complance wh he connung oblgaons arsng from a lsng, has been remeded. Fnally, delsng refers o he permanen cancellaon of he lsng. The erms radng hal and radng suspenson wll be used nerchangeably hroughou he remander of hs paper and refers o suspensons relaed o he dssemnaon of prce-sensve nformaon. 5 FESCO, Sandards for Regulaed Markes (99-FESCO-C), sandard 7, paragraph 14.

4 Ths paper assesses he effcency of radng hals o dssemnae nformaon among marke parcpans on Euronex Brussels. Therefore, we examne he paern of radng acvy before and afer he radng suspenson n order o evaluae hs regulaory polcy measure. Moreover, based on dealed nformaon provded by he sock exchange, he emprcal analyss races f he reurn behavor surroundng he radng hal s affeced by he publcly announced reason for he suspenson. Ths s of major mporance, because secon one shows ha exsng emprcal sudes manly provde evdence for Norh-Amercan sock markes, whle European sock markes are barely nvesgaed wh regard o he effcency of radng suspenson. Ths curren emprcal research can herefore add new evdence wh regard o he use of a regulaory measure on small sock exchanges by examnng radng suspensons on Euronex Brussels. Moreover, examnng Euronex Brussels offers an opporuny o evaluae he effcency of radng hals on a order-drven marke wh an elecronc auomaed radng sysem whou any nfluence of marke-makers or specalss on he effec of a radng suspenson, as s he case, for nsance, on he New York Sock Exchange (NYSE). Whle radng hals on he NYSE end o proec specalss (Howe and Schlarbaum, 1986), radng suspensons on Euronex Brussels don appear o proec any parcular member or neres group, bu are nended o proec nvesors n general. The remander of hs paper s organzed as follows. In he nex secon, we revew he relevan leraure. Secon hree explans he research desgn. I descrbes he daa, he sample, he varables and he mehodology. Emprcal resuls are repored n secon four. Conclusons and polcy recommendaons appear n he fnal secon. 1.Revew of Leraure Alhough several heorecal dscussons on he use of a parcular regulaory measure can be made (see supra), he answer o he queson on he effcency of secures regulaon s manly an emprcal one. Several emprcal sudes nvesgaed he suspenson of radng of a parcular sock, manly on Norh-Amercan sock markes. However, he emprcal resuls on he effcency of radng hals show mxed resuls.

5 Hopewell and Schwarz (1978) examne NYSE-naed radng hals from 1974 ll 1975. News suspensons lased for 261 mnues or approxmaely four and one-half hours 6. Delayed openngs ended o las longer han nraday suspensons 7 (437 mnues compared o 149 mnues). Secures experence a relavely large prce adjusmen durng a radng hal, and he longer he radng hal, he larger he prce adjusmen 8. Ther emprcal resuls show ha secury prces adjus rapdly o he new nformaon released durng he radng hal. Posradng hal abnormal reurn behavor shows ha he prce adjusmen s almos complee by he end of he radng hal. However, a commsson-payng nvesor could no earn abnormal radng profs. Whle prces reac effcenly o sgnfcan new nformaon, pre-radng hal ancpaory prce behavor can be deeced. Alhough her analyss canno dsngush beween he possble causes of hs abnormal reurn behavor, Hopewell and Schwarz sugges nsder radng as a possble explanaon. A dsncon beween bull and bear markes does no resul n dfferen conclusons (Hopewell and Schwarz, 1976). Apar from he sock exchanges, also he Secures and Exchange Commsson (SEC) can hal radng n U.S. markes. These radng suspensons are ofen nended o force complance wh reporng and dsclosure requremens o proec nvesors or o promoe nvesor equy by ensurng ha suffcen nformaon s avalable o make raonal, nformed decsons. Compared o NYSE hals, SEC-naed radng hals are less frequen (frequency of SEC-hal s one enh of NYSE-hals). The average lengh of he SEC-radng hals s subsanally longer: on average 12.2 weeks (Howe and Schlarbaum, 1986). I appears ha SEC-radng hals have o be vewed raher as a dscplnary measure o force complance wh secures regulaon. Howe and Schlarbaum fnd a subsanal negave abnormal reurn over he radng hal perod. Afer he radng hal sock prces keep declnng n he weeks hereafer. Apparenly, SEC-radng hals dsclose unfavorable news, o whch nvesors reac very slowly. No ancpaory abnormal reurn behavor s found. The Ferrs, Kumar and Wolfe (1992) sudy, whch examnes 40 SEC-naed radng hal durng 1959 and 1987, deecs ancpaory prce behavor as well as no complee prce adjusmen o new nformaon released durng he radng hal, especally for he bad news subsample. 6 News suspensons are naed by a pendng or acual news announcemen whch s deemed o have a sgnfcan mpac on he marke prce of a secury. The NYSE has anoher even rggerng a radng hal: a subsanal mbalance of buy and sell orders and are requesed by specalss. These radng hals are called mbalance suspensons. See Hopewell and Schwarz (1978) for more deals. 7 Tradng hals ha are naed someme afer he openng rade. 8 Smlar resuls are beng repored by Schwarz (1976).

6 Oher emprcal sudes focusng on major sock exchanges are Kryzanowsk (1978, 1979) on Canadan sock exchanges and Kabr (1994) on he London Sock Exchange (LSE). Kryzanowsk (1978) repors abnormal reurns n he presuspenson perod as well as n he possuspenson perod. He concludes ha radng hals are no an effecve mechansm o deec he exploaon of prvae nformaon nor o dsclose prce-sensve nformaon durng he suspenson of radng. Examnng a slghly dfferen sample Kryzanowsk (1979) dsngushes beween good and bad new nformaon. Boh subsamples shows abnormal reurns pror o he radng hals, bu only he bad news subsample show abnormal negave reurns n he possuspenson perod. Only he dsclosure of favourable news appears o be effcen. Examnng he radng hals on he LSE, Kabr (1994) confrms he doubs on he effcency of hs mechansm n dssemnang prce-sensve nformaon. Ancpaory prce behavor as well as abnormal reurns n he monh followng he monh of radng rensalmen are repored. Where as he effcency of radng hals on large sock exchanges as he NYSE, he Monreal Sock Exchange or he London Sock Exchange s doubful, emprcal resuls on smaller sock exchanges seem more promsng. Examnng he radng hals on he Sockholm Sock Exchange (Sweden) De Rdder (1990) concludes ha hs s an effecve mechansm o dssemnae new nformaon. No abnormal reurn behavor s deeced n he possuspenson perod, so prces fully adjus over he radng hal perod. Moreover, no ancpaory prce behavor s found durng he presuspenson perod ndcang ha nsders dd no benef sysemacally from her nformaonal advanage. Analogous conclusons can be drawn regardng o he radng hals on he Amserdam Sock Exchange (he Neherlands). The marke auhory of he Amserdam Sock Exchange appears o be very effcen n ulzng hs regulaory mechansm n order o dsclose new nformaon. Kabr (1992) deecs no ancpaon of any radng hal, nor any share prce behavor n he possuspenson perod ndcang a possbly of abnormal prof-makng. Share prces fully ncorporae he nformaon released durng he radng hal. Wh regard o he Sock Exchange of Hong Kong, Wu (1998) shows ha here are no abnormal profs n he possuspenson perod. However, some ancpaory prce behavor s deeced. Whle prevous emprcal sudes focused on reurn behavor around radng hals recen emprcal sudes also examne volume and volaly paerns around he suspenson of radng. Examnng SEC-hals, Ferrs, Kumer and Wolfe (1992) observe a hgher sock reurn

7 volaly n he presuspenson perod as well as n he possuspenson perod. Only several monhs laer a sgnfcan declne of volaly s deeced ndcang ha radng hals are no effecve n mmedaely reducng reurn volaly. Analogous resuls are repored wh regard o volume: hgher han normal volume n he presuspenson as well as n he possuspenson perod. Only four weeks afer he radng hal normal volume paerns reoccur. Also Kabr (1992) repors hgher radng volume around radng hals on he Amserdam Sock Exchange. In hs sudy, radng volume s slghly hgher han normal n he en-day perod before he radng hal, and sgnfcanly hgher n he en-day perod afer he suspenson. Lee, Ready and Segun (1994) repor ncreased volume and volaly afer he rensalmen of radng on he NYSE. Smlar resuls are repored by Wu (1998) wh regard o he Sock Exchange of Hong Kong. Kryzanowsk and Nemroff (1998) deec hgher radng acvy n he presuspenson perod on he Monreal Sock Exchange. Tradng acvy declnes n he possuspenson perod, bu s sll hgher han n he perod pror o he even wndow. Also ncreased volaly s repored n he presuspenson and n he possuspenson perod, bu volaly only ncreases emporarly n he possuspenson perod and decreases whn fve hours afer he radng hal o s level of he pre-even wndow 9. Ths revew of leraure showed mxed resuls concernng he use of radng hals o dssemnae nformaon among marke parcpans. The effcency of hs regulaory measure s doubful on major sock markes as he NYSE, he Canadan marke and he London Sock Exchange. The effcency on smaller sock markes as Sockholm or Amserdam s more promsng. The remander of hs chaper analyzes wheher he effcency of radng suspensons on Euronex Brussels s hgh or low and wheher hese resuls confrm he emprcal fndngs on he use of radng hals on small sock exchanges. Table 1 summarzes he revew of leraure. 9 Gven he exsence of specalss on he NYSE or he Monreal Sock Exchange, some emprcal sudes focus on he role of specalss around radng hals. Because he role of specals s rrelevan o hs emprcal sudy on he Brussels Sock Exchange, wll no be explaned n exenso. See for deals Kng, Pownall and Waymre (1991) and Kryzanowsk and Nemroff (1998). These sudes focus on he prce dscovery process durng radng hals usng specals ndcaons (sequenal forecass of he upper and lower bounds of he secury s prce a he resumpon of rade). See Kng, Pownall and Waymre (1991, 518) for an example.

Table 1. Overvew of he emprcal sudes on radng hals 8 Sudy Counry Fnal sample of news suspensons Perod examned n sudy Who naed he radng hal? Ancpaory prce behavour? Complee adjusmen o new nformaon released durng radng hal? Volume? Volaly? Schwarz (1976) USA 242 Febr. 74 Oc 74 NYSE a - - - - Hopewell and Schwarz (1976) USA Bull: 201 Febr 74 June 75 NYSE yes yes - - Bear: 300 Hopewell and Schwarz (1978) USA 501 Febr 74 June 75 NYSE yes yes - - Kryzanowsk (1978) Canada 34 Jan 67 Dec 73 4 sock yes no - - exchanges Kryzanowsk (1979) Canada Good: 43 Jan 67 Dec 73 4 sock yes yes good news - - Bad: 77 exchanges no bad news Howe and Schlarbaum (1986) USA 49 Febr 59 May 79 SEC no no - - De Rdder (1990) Sweden 137 Jan 80 June 88 SSE no yes - - Kabr (1992) Neherlands 59 Jan 83 March 89 ASE no yes Increases - Ferrs, Kumer and Wolfe (1992) USA 40 Febr 59 Oc 87 SEC yes no Increases Increases Kabr (1994) UK 83 Jan 70 March 88 LSE yes no - - Lee, Ready and Segun (1994) USA 518 88 NYSE - no Increases afer radng hal Increases afer radng hal Wu (1998) Hong-Kong 522 Aprl 86-Dec. 93 SEHK yes yes Increases Increases Kryzanowsk and Nemroff (1998) Canada 412 March-Aug 88 May-Oc 89 MSE - yes Increases Increases emporarly Oc 90-March 91 a NYSE: New York Sock Exchange; SEC: Secures and Exchange Commsson; SSE: Sweden Sock Exchange; ASE: Amserdam Sock Exchange; LSE: London Sock Exchange; MSE: Monreal Sock Exchange; SEHK: Sock Exchange of Hong Kong

9 2.Research Desgn 2.1.Daa The nal populaon conssed of all suspensons of common socks of Belgan companes on Euronex Brussels from January 1992 hrough June 2000. Ths ls oalled 210 radng hals. Ths means, on average, 2.06 radng hals per monh and 0.10 radng hals per radng day or one radng hal every 10.1 radng days 10. Ths ls was provded by he Marke Auhory of Euronex Brussels. The ls ncluded for each radng hal: he company name, he dae of he radng hal, he dae of radng rensaemen, he las sock prce before and he frs sock prce afer he radng hal and fnally, he dealed reason for suspendng he radng 11. When daa was mssng or was ncomplee, addonal daa was colleced from he leadng Belgan fnancal newspaper De Fnanceel Economsche Tjd. Share prce daa were colleced from Daasream. 2.2.Sample descrpon The nal sample conssng of 210 radng hals was furher reduced n several ways. Frs, 12 radng hals were deleed because hese companes were delsed shorly afer he suspenson of radng, meanng no afer-suspenson marke prce of he sock was formed. These radng hals were manly he resul of a bankrupcy, a corporae reorganzaon ordered by cour or a regulaory measure of he supervsory auhores for non-complance of he dsclosure regulaon. Second, all relaed radng hals are lef ou of he sample. When he radng s suspended n one sock, radng n relaed companes s suspended as well. For example, when radng n Perofna was suspended on 30 November 1998 because of he akeover bd by Toal, radng n he socks of he shareholders of Perofna was suspended as well. In hs way, seven oher socks were suspended: Tracebel, Elecrabel, Sofna, NPM, Sdro, GBL and Elecrafna. Therefore he radng hals of relaed companes are lef ou of he fnal sample. Thrdly, 31 observaons were los because of lack of daa. These 31 radng hals nclude manly very small, hnly raded companes for whch no sock prce daa was avalable, such as Musson-Halanzy, Aseau-Presle, Charbonnages du Hasard, Aurex or Roumane-Socéé Générale des Sucreres. Fnally, 22 observaons were excluded because of 10 Gven 250 radng days n one year. 11 The auhor hanks Mr. V. Van Dessel and Mr. L. Delboo of Euronex Brussels for provdng hs daa.

10 overlappng even perods as well as overlappng pre-even perods used for he esmaon of parameers o calculae abnormal reurns (see nfra). For nsance, Ion Beam Applcaons (IBA) was suspended on 15 February 1999 and agan on 3 March 1999. Because he pre-even perod of he second radng hal ncludes he frs radng hal, he esmaon of he parameers can be affeced. Therefore, he second radng hal was lef ou of he sample. In hs way, he fnal sample consss ou of 102 radng hals nvolvng 72 companes. Of hese companes, 48 (66.67%) were suspended only once durng he sample perod, whle 24 companes were suspended more han once. Egheen companes were suspended wo mes and sx companes hree mes (see panel B n able 2). The average number of radng hals per company s 1.42 and he medan s 1.00 (see panel A n able 2). Of he 102 radng hals from January 1992 hrough June 2000, 82 are sngle day suspensons (80.4%), whle 20 are mulday suspensons (19.6%). The average suspenson perod s 2.34 days (see panel A of able 3). Panel B shows ha 92% of all radng hals lass wo days or less. Table 2.Number of radng hals per company for he fnal sample Panel A. Number of radng hals Number of radng hals 102 Number of companes 72 Average number of radng hals per company 1.42 Medan number of radng hals per company 1.00 Panel B. Dsrbuon over number of radng hals per company Number of radng hals Number of companes 1 48 2 18 3 6 4 0 5 0 Table 3. Sngle day versus mulday radng hals of he fnal sample Panel A. Sngle versus mulday suspensons sngle day 82 80.4% mulday 20 19.6% average 2.34 mn 1 medan 1 max 65 Panel B. Duraon of suspenson (number of days) 1 82 80.39% 2 12 11.76% 3 4 3.92% 4 4 3.92% Legend: Fnal sample of 102 radng hals from January 1992 hrough June 2000

11 Table 4 gve more descrpve sascs for he fnal sample of 102 radng hals. Panel A hrough C gve he dsrbuon of he radng hals per year, per monh and per day of he week. Excep for 1997, we noce ha he number of radng hals ncreased subsanally durng he las fve years. There s no specfc paern of radng hals hroughou he year. Mos radng hals occur n Ocober, Sepember and May, whle he leas radng hals occur n Augus and June. Alhough mos of he radng hals occur on Thursday, no day-of-heweek paern s presen. Table 4. Descrpve sascs for he fnal sample Absolue number Percenage Panel A. Number of radng hals per year 1992 15 14.7% 1993 9 8.8% 1994 5 4.9% 1995 5 4.9% 1996 19 18.6% 1997 8 7.8% 1998 14 13.7% 1999 18 17.6% 2000 9 8.8% Panel B. Number of radng hals per monh Jan 8 7.8% Febr 7 6.9% March 9 8.8% Aprl 8 7.8% May 10 9.8% June 3 2.9% July 7 6.9% Aug 6 5.9% Sep 11 10.8% Oc 16 15.7% Nov 9 8.8% Dec 8 7.8% Panel C. Number of radng hals per day of he week Monday 18 17.6% Tuesday 13 12.7% Wednesday 21 20.6% Thursday 30 29.4% Frday 20 19.6% Legend: Fnal sample of 102 radng hals from January 1992 hrough June 2000 Because he ls provded by he Marke Auhory of Euronex Brussels ncluded dealed nformaon on he reason for suspendng he radng of each parcular sock, each radng hal of he fnal sample was caegorzed accordng o a specfc ype of news. A dealed ls of

12 hese news caegores s provded n appendx A. Table 5 gves a summary of hs caegorzaon. Mos radng hals occurred because of he suspended company beng a akeover arge (34.3%), followed by resrucurng (21.6%), corporae acqusons (18.6%) and dvesures (13.7%). Table 5. Reason (news caegory) for he radng hal for he fnal sample Reason Absolue number % Corporae Acqusons 19 18,6% Takeover arges 35 34,3% Fnancal Informaon 3 2,9% Dvesures 14 13,7% Resrucurng excep dvesures 21 21,6% Legal ssues excep bankrupcy 2 2,0% Bankrupcy 0 0,0% Mscellaneous 2 2,0% No news 6 4,9% Legend: Fnal sample of 102 radng hals from January 1992 hrough June 2000 Prce movemens over he suspenson perod end o be large ndcang ha sgnfcan prcesensve nformaon was released durng he radng hal. The average raw reurn over he suspenson perod was 4.43% (medan was 1.45%) 12. The larges negave reurn s -47.31%, whle he larges posve reurn s 53.68%. Smlar fgures are repored n oher emprcal sudes, e.g. Schwarz (1976) repors posve reurns of 52.9%, 58.8% and 75.0% and negave reurns of -62.9% and -75.0%. The dsrbuon of sock prce reurns over he suspenson perod s shown n fgure 1. Ths fgure shows ha he majory of he radng hals cause a posve prce movemen over he suspenson perod, whle 41 radng hals have a prce movemen equal o or smaller han zero. Furhermore, he fgure shows ha 33 radng hals experence a prce movemen of 2% (n absolue value). Half of he sample has a prce movemen whn he 4%-range, whle 28% of he suspensons have a prce movemen exceedng 10% (n absolue value). 12 Abnormal reurns are repored n secon hree.

13 Fgure 1.Frequency dsrbuon of he average raw reurn over he suspenson perod for he fnal sample of 102 radng hals 20 18 16 14 12 10 8 6 4 2 0 <-0,40-0,40<-0,30-0,30<-0,20-0,20<-0,15-0,15<-0,10-0,10<-0,08-0,08<-0,06-0,06<-0,04-0,04<-0,02-0,02<0,00 >0,00-0,02 >0,02-0,04 >0,04-0,06 >0,06-0,08 >0,08-0,10 >0,10-0,15 >0,15-0,20 >0,20-0,30 >0,30-0,40 Number of observaons >0,40 Reurn over suspenson perod 2.3.Descrpon of he varables In he res of hs paper he followng erms are used: R, = he logarhmc reurn of sock n perod 13 R m, = he logarhmc marke ndex reurn n perod AR, = abnormal reurn of sock on day of he esmaon perod AR, E = abnormal reurn of sock on he even day R m, = marke ndex reurn on day of he esmaon perod R m, E = marke ndex reurn on he even day R m = average marke ndex reurn durng he esmaon perod N = number of socks n he sample T = number of radng days n he esmaon perod ŝ = esmaed sandard devaon of he abnormal reurn of sock durng he esmaon perod SAR, E = sandardzed abnormal reurn of sock on he even day w = number of socks n he sample wh a posve abnormal reurn on he even dae

14 2.4.Mehodology To evaluae he effcency of usng radng hals o dssemnae prce-sensve nformaon among marke parcpans, an even-me sudy s used o analyze he mpac of he radng suspenson. In hs case he even s he suspenson of he sock and herefore day 0 s defned as he day on whch he radng hal occurs, whle day 1 s he radng day mmedaely before he suspenson day and day +1 s he day mmedaely afer he suspenson day. The reurn on day 0 s calculaed beween he las closng prce before he radng hal o he frs closng prce afer he radng hal, whle he reurn of day +1 s calculaed as he reurn beween hs frs closng prce and he nex day s closng prce 14. Whle 80% of he radng hals are sngle day suspensons (see able 2), 20 radng hals ou of 102 are mulday suspensons. In order o oban comparable daly reurns on even day 0, he mulday reurns over he suspenson perod are scaled by he number of suspenson days. An even sudy examnes f he average abnormal reurn on he even day s equal o zero (null hypohess) versus an alernave hypohess of a non-zero abnormal reurn: H H 0 1 : : AAR AAR E E = 0 0 The average abnormal reurn (AAR E ) on he even day s he aggregaon of he ndvdual sock abnormal reurns algned n even me: AAR = 1 N E AR, E N = 1 On he even day and on weny radng days before and afer he suspenson, resulng n a 41-day even wndow 15, abnormal reurns are beng calculaed o examne reurns behavor around he radng hal. Indvdual sock abnormal reurns are measured as he dfference beween he realzed or acual reurn on he even day (R, ) and he expeced reurn E[R, ], whch s he benchmark normal reurn n he absence of he even: [1] [2] 13 P, + D, The logarhmc reurn of a sock s calculaed as: R =, ln, where P, s he -sock closng prce P, 1 on radng day, D, s he cash dvdend pad on radng day and P, -1 s he -sock closng prce on radng day -1, all adjused for all capal changes as sock spls and sock dvdends. 14 Alhough more precse daa on raw reurns s avalable,.c. he reurn beween he las marke prce before he radng hal and he frs marke prce afer he radng hal, he correspondng daa on marke ndex reurns lacked. Therefore, reurns on day 0 are calculaed from close o close. 15 The ypcal lengh of he even perod ranges from 21 o 121 days for daly sudes. See Peerson (1989).

15 [ R ] AR, = R, E, [3] Several mehods exs o esmae he expeced reurn of he socks. In hs sudy he marke adjused model and he marke model are used. Moreover, he marke model s adjused o ncorporae hn radng problems by usng he Dmson (1979) mehodology. These models are dscussed n he nex secon. 2.4.1.Calculang he benchmark expeced reurn The benchmark expeced reurn for each ndvdual sock depends on he model used: [ R ] Rm [ R ] aˆ, + bˆ Rm D D [ R, ] = ˆ α + ˆ β Rm E,, =, for he marke-adjused model, =, for he marke model, E, E,, for he Dmson model, and The expeced reurn of a sock n he marke-adjused model s he curren marke ndex reurn. The marke-adjused abnormal reurn s hus equal o: AR, = R, Rm, Ths model uses no nformaon from ousde he even wndow o calculae abnormal reurns durng he even perod. [4] Marke model abnormal reurns are calculaed as:,, ( aˆ + bˆ R ) AR = R, m where ^ denoes he OLS-esmaes from he marke model: R, = a + b Rm, + e, [5] [6] wh R, = he reurn of sock n perod R m, = he marke ndex reurn n perod a, b = nercep and slope coeffcen of he marke model (sock--specfc and mendependen parameers) e, = random dsurbance erm of he marke model for sock n perod

16 In order o calculae marke model abnormal reurns nformaon from ousde he even wndow s used. The parameers of he marke model are esmaed over a perod from 21 o 140 radng days before he even day 16. When here s hn radng of socks, he OLS-esmaes of marke model beas can be affeced. Thn radng of socks can reduce he measured correlaon wh he marke ndex, and consequenly he bea esmae: hnly raded socks appear o have downward based beas, whle acvely raded socks have upward based bea esmaes. These based bea esmaes can cause based abnormal reurns and msspecfed es sascs n even sudes (Srong, 1992). Our sample consss of many hnly raded socks. Therefore, he Dmson (1979)-mehod was used o adjus beas for he exen of hn radng 17. The esmaon of he Dmson-bea consss of he aggregaon of fve esmaed bea coeffcens usng wo lead and wo lag varables 18 : ˆ β D D = k = + 2 k = 2 bˆ k,, or ˆ β = ˆ ˆ ˆ ˆ ˆ [8] b 2, + b 1, + b0, + b+ 1, + b+ 2, [7] The varables ˆ b k, wh k = -2, -1, 0, +1, +2 are esmaes of he slope coeffcens n a mulple regresson of he sock reurn n perod agans he reurn on he marke n perods -2, -1, 0, +1 and +2 (Dmson, 1979): R, = a + b 2, Rm, 2 + b 1, Rm, 1 + b0, Rm, + b+ 1, Rm, + 1 + b+ 2, Rm, + 2 + w, [9] Whle he OLS-esmaon of bea uses he complee (-140,-21) esmaon-wndow, he Dmson esmaon uses an (-138,-23) esmaon-wndow o allow for he wo day leadng and laggng. The abnormal reurns are calculaed as (Brown and Warner, 1985): AR = R ˆ α ˆ β R, [10], wh, D D m ˆ β D = k = + 2 k = 2 bˆ k,, and [11] 16 The ypcal lengh of he esmaon perod ranges from 100 o 300 days for daly sudes. See Peerson (1989). 17 An alernave procedure s Scholes and Wllams (1977). However, Fowler and Rorke (1983) show ha he choce beween Dmson and Scholes-Wllams s equvalen. 18 Emprcal sudes use a large varey of leads and lags. For nsance, Brown and Warner (1985) use k=- 3,,0,,+3; Dmson and Marsh (1986) use k=-1,,0,,+5; Kabr (1994) uses k=-3,,0,+1; O Hanlon and Seel (1997) use k=-1,0,+1 and Ibboson, Kaplan and Peerson (1997) use k=-1,0.

17 = 23 = 23 D 1 1 =, ˆ D ˆ α R β Rm, [12] 116 116 = 138 = 138 However, he use of procedures o correc for hn radng can be quesoned. Brown and Warner (1985) show ha here s no evdence ha hese procedures mprove he specfcaon or he power of he ess. Smlar resuls were found by Dyckman, Phlbrck and Sephan (1984). These fndngs were also repored by Renganum (1982), Theobald (1983) and Cowan and Sergean (1996) 19. Srong (1992) pons ou ha, alhough OLS bea esmaes can bas he abnormal reurns for an ndvdual sock, hese bases may average ou o zero n he sample of he even sudy. Moreover, Barholdy and Rdng (1994) show ha OLS even ouperforms he use of alernave mehods of bea esmaon. 2.4.2.Tes sascs The radonal es procedure assumng cross-seconal ndependence s he Paell (1976)- es 20. Ths es sasc sandardzes he abnormal reurn for each sock by s sandard devaon. The resulng es sasc s gven by equaon [13] 21. Z = N = 1 N = 1 SAR T T, E 2 4 ~ N ( 0,1) [13] wh AR, E SAR, E = [14] 1 sˆ 1 + + T 2 2 ( Rm, E Rm ) 21 ( R R ) = = 140 m, m However, radonal es sascs assume sable varances, meanng ha here s no change n varance beween he esmaon perod and he even perod. Even-nduced varance, on he 19 Srong (1992) repors smlar resuls found by Gheyara and Boasman (1980), Dodd and Warner (1983), Lnn and McConnell (1983) and Dopuch e al. (1986). 20 Snce he radng hals occur ndependen of each oher and no even-dae cluserng s presen, no correcon for cross-seconal dependence s necessary. Moreover, Brown and Warner (1985) pon ou ha dependence adjusmen can be harmful compared o procedures whch assume ndependence because ess assumng crossseconal dependence are only half as powerful and usually no beer specfed han es assumng ndependence.

18 oher hand, means ha he varance durng he even wndow exceeds he varance over he esmaon perod (Seler, 2000). If he varance s underesmaed, radonal es sascs wll rejec he null hypohess oo frequenly, even when he average abnormal reurn s n fac zero (Brown and Warner, 1985; Boehmer, Musumec and Poulsen, 1991). Several sudes repor ndeed ncreases of he varance of reurns when ceran evens occur. A paramerc es ha ncorporaes even-nduced varance s offered by Boehmer, Musumec and Poulsen (1991). Ths es mproves he Paell-es by allowng he abnormal reurn varances o dffer beween he even and he esmaon perods. They show ha even a very small ncrease n varance s very problemac for he radonal ess. Ther es sasc ncorporaes varance nformaon from he esmaon as well as he even wndow (Boehmer, Musumec and Poulsen, 1991): N 1 SAR, E N = 1 Z = ~ N( 0,1) [15] 2 N 1 N SAR, E SAR, E N( N 1) = 1 = 1 N wh AR, E SAR, E = [16] 1 sˆ 1 + + T 2 2 ( Rm, E Rm ) 21 ( R R ) = = 140 m, m The man dsadvanage of paramerc ess s ha hey are based on assumpons abou he probably dsrbuon of reurns. Non-paramerc ess do no depend on he assumpon of normaly. Because non-paramerc ess do no use he reurn varance, hese ess are more approprae n case of even-nduced varance. Two paramerc ess are generally used: he sgn es (see nfra) and he rank es of Corrado (1989). Corrado (1989), Corrado and Zvney (1992) and Campbell and Wasley (1993) show ha he rank es performs beer han he radonal es sascs n case of even-nduced varance. The rank es s gven by equaon [17] (Corrado, 1989 and Corrado and Zvney, 1992): N ( U,0 0.5) 1 Z = ~ N( 0,1) [17] N = 1 S wh U 21 See secon 1.3 for a descrpon of he varables.

19 + 20 N 1 1 S U = ( U, 0. 5) [18] 161 N U, = K, ( M + 1) = = 140 1 2 wh K, = rank (AR, ), M represens he number of non-mssng abnormal reurns for sock and N represens he number of nonmssng abnormal reurns n he cross-secon of N frms on day n even me. [19] Besdes even-nduced varances, hn radng s anoher crucal problem for he even sudy es specfcaon. Cowan and Sergean (1996) pon ou ha hnly raded socks are characerzed by numerous zero and large non-zero reurns, causng non-normal reurn dsrbuons. Ths causes radonal es sascs o be poorly specfed (Campbell and Wasley, 1993). Smlar resuls are repored by Maynes and Rumsey (1993) showng ha he rank es s a good alernave for hnly raded socks causng radonal ess o be msspecfed. Cowan (1992) repors deparures from normaly (rgh skewness) causng paramerc ess based on he normaly assumpon o be less well specfed for Nasdaq socks as compared o NYSE and AMEX socks. Moreover, he rank es s also msspecfed for Nasdaq socks! However, he generalzed sgn es performs well for hnly raded socks. The generalzed sgn es by Cowan (1992) s gven n equaon [22]. Z = ( w npˆ ) npˆ ( 1 pˆ ) ~ N ( 0,1) where w represens he number of socks n he sample wh a posve abnormal reurn on he even dae, p represens he fracon of posve abnormal reurns expeced under he null hypohess, and N = 21 1 1 pˆ = ϕ, N 120 = 1 = 140 wh ϕ, = 1 when AR,E > 0 and 0 oherwse 22. [20] [21] The poorly specfcaon of he Paell-es s also confrmed by Cowan and Sergean (1996). Ther smulaons show ha he bes es for hnly raded socks wh no ncrease of he reurn varance on he even dae s eher he rank or he generalzed sgn es. In case of an ncrease

20 of he reurn varance on he even dae, resuls are less clear. For lower-aled ess he generalzed sgn es should be used. For upper-aled ess he sandardzed cross-seconal es of Boehmer, Musumec and Poulsen (1991) can be used, bu s no very powerful and rsks o be msspecfed f he varance ncrease does no occur. An alernave s he generalzed sgn es, bu s msspecfed n a few hnly raded samples. Resuls are summarzed n able 6. In he remander of hs paper we perform boh paramerc and non-paramerc ess o deermne sascal sgnfcance. The radonal Paell -es assumng cross-seconal ndependence s performed frs 23. Nex, we also use he generalsed sgn es of Cowan (1992) as a non-paramerc es o es sascal sgnfcance of abnormal reurns 24. Table 6. Bes replacemen of he Paell-es n case of even-nduced varance or hnly raded socks No varance ncrease on even dae Paell-es Tckly raded socks Thnly raded socks -Generalzed sgn es -Rank es Varance ncrease on even dae -Sandardzed cross-seconal es of Boehmer, e al. (1991) -Rank es of Corrado (1989) -Generalzed sgn es of Cowan (1992) Lower-aled ess: -Generalzed sgn es Upper-aled ess: -Sandardzed cross-seconal es -Generalzed sgn es Sources: Corrado (1989), Corrado and Zvney (1992), Cowan (1992), Campbell and Wasley (1993), Maynes and Rumsey (1993), Cowan and Sergean (1996), Seler (2000). 22 The dfference beween he generalzed sgn es and he radonal sgn es s he value of p under he null hypohess. Whle he radonal sgn es uses a value of 0.50, he generalzed sgn es uses he fracon of posve reurns n he esmaon perod, measured across N socks and T days as value for p. 23 See equaon [13]. 24 See equaon [20].

21 3.Emprcal resuls The emprcal analyss of he effcency of radng hals on Euronex Brussels sars wh an examnaon of he abnormal reurns n secon 3.1. Ths analyss s compleed by an analyss of he abnormal radng volume n secon 3.2 and he volaly of he sock reurns around he suspenson n secon 3.3. 3.1.Analyss of abnormal reurns 3.1.1.Complee sample Because radng hals are a regulaory acon desgned o dssemnae prce-sensve nformaon among marke parcpans, hs secon examnes he process of he prce adjusmen o hs new nformaon before, durng and afer he suspenson. Through an analyss of he valuaon effecs of he suspensons we can evaluae he effecveness of radng hals as a regulaory measure. If Euronex Brussels were a sem-srong form nformaonally effcen sock marke, he sock prce would adjus nsananeously o he new nformaon ha was released durng he radng hal. Moreover, sem-srong form effcency would mply ha here sn any ancpaory prce behavor n he presuspenson perod, nor any sgnfcan abnormal reurn behavor n he possuspenson perod. In hs secon we examne (a) f radng hals are assocaed wh an mporan release of nformaon, (b) f here s any unusual reurn behavor before he suspenson and (c) f here s a complee adjusmen o new nformaon released durng he radng hal. To examne he abnormal reurn behavor over he suspenson perod, a marke adjused model was used as he benchmark expeced reurn (see equaon [4]). Table 7 conans he resuls for he enre sample of 102 suspensons from 1992 hrough 2000. The mean abnormal reurn over he suspenson perod amouns 3,31%. The cumulave abnormal reurns are vsualzed n fgure 2. In order o es wheher he abnormal reurns n he even wndow are sgnfcanly dfferen from zero, a non-paramerc es was used. For, as explaned n secon 2.4.2, he radonal - es performs very poorly n case of hn radng or varance ncrease on even dae. Because he sample n hs sudy conans a large amoun of hnly raded socks, a generalzed sgn es

22 (see equaons [20]) s used o es sascal sgnfcance of he abnormal reurns. The radonal -es s merely repored for he sake of compleeness 25. Fgure 2. Marke adjused mean CARs for he enre sample from 1992 o 2000 0,0500 0,0400 0,0300 CAR 0,0200 0,0100 0,0000-0,0100-20 -18-16 -14-12 -10-8 -6-4 -2 0 2 4 6 8 10 12 14 16 18 20 Even wndow Noe: CAR = marke adjused cumulave mean abnormal reurns Sample sze: n=102 suspensons CAR Table 7 shows ha only he abnormal reurn over he radng suspenson (day [0]) s sgnfcanly dfferen from zero. I appears ha here s no ancpaory prce behavor n he presuspenson perod. The CAR over he presuspenson perod [-20, -1] s 0.45%, alhough nsgnfcan. Alhough many prevous sudes show ancpaory prce behavor pror o he radng hal (see e.g. Hopewell and Schwarz, 1978; Kryzanowsk, 1979 or Kabr, 1994), our resuls are n lne wh he fndngs on oher small sock exchanges as Sockholm (De Rdder, 1990) or Amserdam (Kabr, 1992). Once he radng suspenson s over, share prces do no follow any parcular paern. Alhough he CAR n fgure 2 shows a downward rend afer he rensalmen of radng, hs s no sascally sgnfcan. We can conclude ha share prces nsananeously ncorporae 25 However, he resuls of he -es have o be nerpreed wh cauon because under he condons of hs sample, he radonal -es wll rejec he null hypohess of a zero abnormal reurn oo ofen whle n realy here s no abnormal reurn presen.

23 he new nformaon released durng he radng hal. Agan, hese resuls are n lne wh De Rdder (1990) and Kabr (1992) 26. Table 7.Marke adjused mean abnormal reurns and cumulave abnormal reurns for he enre sample from 1992 o 2000 Marke adjused (n = 102) AR CAR -es p-value Z-value Gen.Sgn Tes -20-0,0017-0,0017-0,85 0,3977-0,41-15 -0,0020-0,0032-1,35 0,1796-0,21-10 0,0017-0,0005 1,97 0,0516-0,01-5 0,0025 0,0045 1,66 0,0995 1,38-4 -0,0019 0,0026-1,19 0,2374 0,39-3 -0,0004 0,0022-0,09 0,9296-0,21-2 -0,0011 0,0011 0,81 0,4197 0,78-1 0,0034 0,0045 1,25 0,2154 0,39 0 0,0331 0,0377 28,20 ** 0,0000 2,96 * 1-0,0012 0,0364 0,22 0,8265-0,01 2-0,0024 0,0341-0,40 0,6918 0,19 3 0,0038 0,0379 2,30 * 0,0235 1,38 4-0,0010 0,0369-0,64 0,5267-1,40 5-0,0013 0,0356-0,38 0,7017 1,18 10-0,0033 0,0276-1,92 0,0572-0,81 15 0,0017 0,0253 0,54 0,5871-0,01 20-0,0034 0,0132-1,43 0,1555-1,00 Noe: AR = marke adjused mean abnormal reurn CAR = marke adjused cumulave mean abnormal reurns Sample sze: n=102 suspensons -es and p-value: es sascs for radonal -es Z-value: es sasc for generalzed sgn es ** denoes sgnfcan a he 1% level * denoes sgnfcan a he 5% level 26 See able 1 for an overvew of he abnormal reurn behavor on US markes.

24 3.1.2.Robusness of he benchmark model To examne he sensvy of he above resuls o he choce of he benchmark model o calculae he abnormal reurns, he analyss was repeaed for he marke model and he Dmson model. The parameers ( αˆ and βˆ ) of he marke model are calculaed over he 120 days esmaon perod, sarng wh day [-140] hrough day [-21]. Smlar o Brown and Warner (1985) we excluded all observaons ha dd no have a leas 30 daly reurns n he esmaon perod. In hs way, he sample sze was reduced o 82 observaons. Because our sample conans many hnly raded socks, he bea esmae of he marke model wll be based downward (see secon 2.4.1). Therefore, we use he Dmson-mehod o correc for hn radng, usng wo lead and wo lag varables. Alhough he average bea obaned from he Dmson mehod (0.61) s much hgher han he average bea from he OLS-esmaon (0.14) s sll farly low. The abnormal reurns around he radng hals usng he marke model and he Dmson model as he benchmark expeced reurn, are repored n appendx B. The resuls are smlar o he resuls obaned from he marke adjused model. The mean abnormal reurn on day [0] s 3,43% and 3,45% for he marke model and he Dmson model, respecvely, compared o 3,31% usng he marke adjused model. Agan, he generalzed sgn es shows no sgnfcan abnormal reurns pror o or afer he radng hal. Because he resuls are largely nsensve o he choce of he benchmark model, we use he marke adjused model as benchmark nsead of he marke model or he Dmson model n he res of he chaper. Frs of all, he use of he laer would reduce he sample sze from 102 o 82 observaons. Secondly, he correc esmaon of beas of hnly raded socks s raher dffcul. Thrdly, Fedena, Hodder and Trans (1994) show ha he esmaon of beas can serously be dsored on sock exchanges, as Euronex Brussels, ha are characerzed by he presence of holdng companes and equy cross-holdngs. 3.1.3.Subsamples based on news caegores Because he resuls, as shown n fgure 2 and able 7, nclude he enre sample, s dffcul o nerpre hese prce adjusmens. Because he enre sample ncludes boh posve and negave news, as well as dfferen news caegores (e.g. corporae acqusons, resrucurng or legal ssues), aggregaon across secures makes he resuls dffcul o nerpre because of

25 poenal offseng prce mpacs of he dfferen subsamples. Therefore, we dvde he oal sample of radng hals n hree subsamples accordng o he reason for he suspenson. The frs subsample conans 54 radng hals for news concernng corporae acqusons and akeover arges 27. Ths subsample s labelled mergers and acqusons. The second subsample ncludes all radng hals wh regard o dvesures, as he sale of busness segmens, parcpaons and spn-offs. Ths group ncludes 14 observaons. Fnally, a subsample of 21 radng hals s used for news relaed o oher resrucurngs 28. Alhough a fner paronng of he daa, accordng o he dealed scheme n appendx A, would be very useful, s no possble because of he small sample sze. Fgure 3. Mean CARs for he hree subsamples based on he reason for he suspenson 0,1200 0,1000 0,0800 0,0600 0,0400 CAR 0,0200 0,0000-0,0200-0,0400-0,0600-0,0800-20 -18-16 -14-12 -10-8 -6-4 -2 0 2 4 6 8 10 12 14 16 18 20 Even wndow M&A Dves. Resr. Noe: CAR = marke adjused cumulave mean abnormal reurns Sample sze: n=54 (Mergers and acqusons), n=14 (Dvesures) and n=21 (Resrucurng) 27 See appendx A for he dfferen new caegores. 28 News caegores 41 o 45 n appendx A.

26 Table 8. Abnormal reurns and cumulave abnormal reurns over he even wndow for hree subsamples Mergers and acqusons (n=54) Dvesures (n=14) Resrucurng (n=21) AR CAR -es p-value Z-value AR CAR -es p-value Z-value AR CAR -es p-value Z-value -20 0,0016 0,0016 0,24 0,81 0,72-0,0017-0,0017-0,53 0,60-0,78-0,0065-0,0065-0,92 0,37-0,83-15 -0,0036-0,0035-1,62 0,11-0,37 0,0018 0,0125 0,62 0,54 0,29-0,0031-0,0074-1,30 0,21-0,83-10 0,0022-0,0045 1,91 0,06 0,45-0,0028 0,0082-0,21 0,84-1,31 0,0068 0,0071 1,58 0,13 0,48-5 0,0015 0,0047 0,80 0,43 0,99 0,0050 0,0103 1,76 0,10 0,83-0,0013 0,0139 0,72 0,48-0,39-4 0,0000 0,0047-0,74 0,46 0,99 0,0008 0,0110 0,91 0,38 0,83-0,0046 0,0094-1,00 0,33-0,83-3 0,0026 0,0074 0,99 0,33 1,27 0,0012 0,0122 0,14 0,89-0,78-0,0052 0,0042-1,00 0,33-1,70-2 0,0047 0,0120 0,93 0,35 0,72-0,0061 0,0062 0,35 0,73 0,29 0,0002 0,0044 1,12 0,28 0,92-1 0,0027 0,0148 0,76 0,45-0,37 0,0054 0,0115 1,89 0,08-0,78 0,0017 0,0061 1,20 0,24 0,92 0 0,0803 0,0951 39,75 ** 0,00 3,72 ** -0,0040 0,0075 3,24 ** 0,01 0,83-0,0366-0,0304-1,69 0,11 0,48 1-0,0048 0,0903-1,84 0,07 0,17 0,0136 0,0211 2,59 * 0,02 0,29-0,0079-0,0384-0,30 0,77-0,83 2-0,0019 0,0884-0,62 0,54 0,99-0,0042 0,0169-1,09 0,30-1,31-0,0039-0,0423-0,13 0,89-0,39 3 0,0080 0,0964 3,41 ** 0,00 2,36 * 0,0033 0,0202-1,70 0,11-0,24-0,0145-0,0568-1,40 0,18-1,26 4 0,0031 0,0995 0,34 0,73 0,45-0,0029 0,0174-0,71 0,49-1,31-0,0069-0,0637-1,93 0,07-1,70 5 0,0011 0,1006 0,02 0,98 0,17-0,0037 0,0137-1,03 0,32-0,24 0,0006-0,0631 0,72 0,48 3,11 * 10-0,0056 0,0861-2,00 0,05-0,92-0,0032 0,0195-1,22 0,25-1,31 0,0001-0,0604 0,07 0,94 0,48 15 0,0014 0,0832-0,13 0,90-0,10 0,0002 0,0219 0,37 0,72 0,29 0,0077-0,0403 0,87 0,39 0,48 20-0,0039 0,0746-1,59 0,12-1,73 0,0010 0,0089 0,45 0,66 0,83-0,0044-0,0500-1,12 0,28-0,39 Legend: n= number of radng hals n he sample; AR = marke adjused mean abnormal reurn; CAR = marke adjused cumulave mean abnormal reurn; -es & p- value= es sasc resp. p-value for he radonal -es; Z-value= es-sasc for he generalzed sgn es; ** denoes sgnfcan a he 1% level and * denoes sgnfcan a he 5% level

27 The resuls for he hree subsamples are repored n able 8. Fgure 3 conans a graphc represenaon of he CARs. None of he hree subsamples shows any ancpaory prce behavor. I appears ha here s no any nformaon leakage o he marke wh regard o mergers and acqusons, dvesures or resrucurng plans. Over he suspenson perod he mean abnormal reurn of he mergers and acqusons subsample s 8,03%, whch s sgnfcan a he 1% level. The mean abnormal reurn for he dvesures and resrucurng subsamples are 0,4% and 3,66% respecvely, alhough no sascally sgnfcan. Noce ha fgure 3 shows ha he mergers and acqusons subsample have, an average, a posve prce mpac, whle he resrucurng subsample has a negave prce mpac. If one compares fgure 3 and fgure 2, s clear ha he mergers and acqusons subsample domnaes he resuls of he oal sample. Smlar fndngs are repored by De Rdder (1990) for he Swedsh sock marke 29. Furhermore, able 8 shows ha here s no sgnfcan abnormal reurn behavor afer he rensalmen of radng. I appears ha sock prces adjus compleely o he new nformaon released durng he radng suspenson. 3.1.4.Prce mpac over he span of he suspenson perod Regardless of he sgn of he prce movemen (posve or negave), fgure 4 represens he magnude of he abnormal reurns over he even wndow [-20, +20]. I s clear ha a radng hal s assocaed wh he release of mporan prce-sensve nformaon, resulng n an abnormal reurn over 8% (n absolue value) on day [0]. Ths s no surprsngly because he radng hals on Euronex Brussels are generally assocaed wh he release of nonroune and exremely prce-sensve nformaon as mergers and acqusons or resrucurngs. Roune announcemens of earnngs or dvdends are n general no released durng a radng hal. Only hree cases ou of he oal sample of 102 radng hals concern he release of fnancal nformaon as earnngs or dvdend announcemens. Smlar resuls are repored by Kng, Pownall and Waymre (1991) for he US: 79.3% of her sample s relaed o dsclosures abou corporae akeovers and leveraged buyous, whch canno be predced by nvesors, bu whch have large prce mpacs. 29 Compare fgures 3 and 4 n De Rdder (1990). Hs subsample of mergers and acqusons conans 70 radng hals ou of a oal sample of 137 observaons.

28 Fgure 4. Magnude of he abnormal reurns over he even wndow 0,0900 0,0800 0,0700 Absolue value (AR) 0,0600 0,0500 0,0400 0,0300 0,0200 0,0100 0,0000-20 -18-16 -14-12 -10-8 -6-4 -2 0 2 4 6 8 10 12 14 16 18 20 Even wndow ABS(AR) Noe: ABS(AR) = absolue value of he marke adjused mean abnormal reurns Sample sze: n=89 (Mergers and acqusons, dvesures and resrucurng) Fgure 5. Medan CARs for he hree subsamples based on he reason for he suspenson 0,04 0,03 0,02 Medan CAR 0,01 0-0,01-0,02-0,03-20 -18-16 -14-12 -10-8 -6-4 -2 0 2 4 6 8 10 12 14 16 18 20 Even wndow M&A Resr. Dves. Noe: medan CAR = marke adjused cumulave medan abnormal reurns Sample sze: n=54 (Mergers and acqusons), n=14 (Dvesures) and n=21 (Resrucurng)

29 3.1.5.The mpac of oulers To es he mpac of oulers on he mean abnormal reurns, medan abnormal reurns are calculaed as well. The medan abnormal reurn for he hree subsamples are 3.11%, 0.19% and 0.16% for he mergers and acqusons, dvesures and resrucurng subsamples, respecvely. In general, he conclusons of he medan abnormal reurn analyss are smlar o he mean abnormal reurns. No ancpaory sock prce behavor and complee prce adjusmen over he radng suspenson (see able 9 and fgure 5). Table 9.Medan abnormal reurns and cumulave abnormal reurns over he even wndow for hree subsamples Mergers and acqusons Dvesures Resrucurng AR p-value CAR AR p-value CAR AR p-value CAR -20 0,0003 0,4207 0,0003-0,0042 0,4263-0,0042-0,0030 0,1349-0,0030-15 -0,0003 0,2025-0,0046 0,0005 0,6698-0,0033-0,0040 0,1491-0,0018-10 0,0000 0,5156-0,0062-0,0039 0,2412-0,0021 0,0025 0,3377 0,0061-5 0,0016 0,3263-0,0035 0,0023 0,4631-0,0024-0,0001 0,9861 0,0117-4 0,0015 0,7962-0,0020 0,0025 0,7064 0,0001-0,0001 0,4340 0,0116-3 0,0014 0,2056-0,0006-0,0003 0,9749-0,0002-0,0048 0,0885 0,0068-2 0,0003 0,3705-0,0002 0,0001 0,9515-0,0001 0,0013 0,8649 0,0081-1 -0,0002 0,6512-0,0005-0,0059 0,8077-0,0060 0,0022 0,4041 0,0103 0 0,0311 ** 0,0000 0,0306 0,0019 0,7609-0,0041 0,0016 0,5315 0,0119 1-0,0001 0,4409 0,0305 0,0006 0,5830-0,0035-0,0019 0,5663 0,0100 2 0,0005 0,7664 0,0310-0,0036 0,0580-0,0070-0,0002 0,7281 0,0099 3 0,0050 ** 0,0053 0,0360-0,0007 0,7775-0,0078-0,0021 0,1790 0,0078 4 0,0001 0,7962 0,0361-0,0010 0,3151-0,0088-0,0050 0,2722 0,0028 5-0,0001 0,8228 0,0360-0,0018 0,3792-0,0105 0,0034 * 0,0290 0,0062 10-0,0009 0,1643 0,0352-0,0035 0,4263-0,0097 0,0013 0,6091 0,0111 15-0,0001 0,6920 0,0323-0,0003 0,8260-0,0139 0,0016 0,3133 0,0133 20-0,0028 * 0,0453 0,0285 0,0013 0,5830-0,0214-0,0003 0,3754 0,0115 Noe: AR = marke adjused medan abnormal reurn CAR = marke adjused cumulave medan abnormal reurns Sample sze: n=54 (Mergers and acqusons), n=14 (Dvesures) and n=21 (Resrucurng) p-value: es sascs for he Wlcoxon sgned rank es ** denoes sgnfcan a he 1% level * denoes sgnfcan a he 5% level

30 3.1.6.Good news versus bad news subsamples Besdes subsamples based on he news caegores of appendx A, anoher wo subsamples are formed: a good news and a bad news subsample. In order o caegorze a radng hal n one of he wo subsamples, he ck sgn es of Kraus and Soll (1972), Hopewell and Schwarz (1976, 1978) and Kng, Pownall and Waymre (1991) was used. The ck sgn s he sgn of he prce movemen over he span of he suspenson. Ths mehod perms he classfcaon of hose secures experencng favorable and unfavorable developmens such as good and bad news (Hopewell and Schwarz, 1976). If he reurn was posve, he radng hal was classfed as good news (61 observaons); f was negave, was classfed as bad news (33 observaons) 30. The mean abnormal reurns and CARs for he good and bad news subsamples are repored n able 10 and vsualzed n fgure 6. Fgure 6. Mean CARs for he bad and he good news subsample 0,1200 0,1000 0,0800 0,0600 0,0400 CAR 0,0200 0,0000-0,0200-0,0400-0,0600-0,0800-0,1000-20 -18-16 -14-12 -10-8 -6-4 -2 0 2 4 6 8 10 12 14 16 18 20 Even wndow negave ck es Noe: CAR = marke adjused cumulave mean abnormal reurns Sample sze: n=33 (bad news) and n=61 (good news) posve ck es Agan, boh subsamples are n lne wh he predcons of a sem-srong form nformaonally effcen sock marke. No ancpaory prce behavor s deeced and a complee and nsananeous prce adjusmen over he radng suspenson s observed. The mean abnormal reurn for he good news subsample s 8.42%, whle he mean abnormal reurn for he bad news subsample s 4.18%. The CARs for he good news subsample reman sable n he

31 possuspenson perod, whle he CARs for he bad news sample show a downward rend, whch s, however, no sascally sgnfcan. In conras o Kryzanowsk (1979) and Howe and Schlarbaum (1986) we do no fnd lags and frcons n he downward adjusmen of secury prces o he release of unfavourable nformaon durng a radng suspenson. Table 10. Abnormal and cumulave abnormal reurns for he bad and good news sample Bad news sample (n = 33) Good news sample (n=61) AR CAR -es p-value Z-value AR CAR -es p-value Z-value -20 0,0047 0,0047 1,17 0,250 1,66-0,0046-0,0046-1,63 0,108-1,62-15 0,0018 0,0011 0,74 0,467 0,97-0,0040-0,0040-2,38 * 0,021-0,85-10 -0,0032-0,0034-0,06 0,955-1,13 0,0036-0,0026 2,19 * 0,032 0,18-5 -0,0012 0,0012-0,15 0,883 0,27 0,0035 0,0038 2,14 * 0,037 1,71-4 -0,0030-0,0018-1,01 0,320 1,32-0,0011 0,0027-0,76 0,450-0,34-3 -0,0048-0,0065-1,35 0,187-1,48 0,0021 0,0048 0,89 0,377 0,69-2 0,0032-0,0033 1,07 0,294 0,27-0,0029 0,0019 0,07 0,942 0,18-1 0,0002-0,0031-1,73 0,092-0,43 0,0051 0,0070 2,48 * 0,016 0,43 0-0,0418-0,0449-13,91 ** 0,000-2,87 ** 0,0842 0,0912 45,88 ** 0,000 5,81 ** 1-0,0123-0,0572-1,57 0,126-0,08 0,0033 0,0945 0,80 0,428 0,69 2-0,0054-0,0626-0,80 0,430-0,78 0,0000 0,0945 0,13 0,893 1,71 3 0,0030-0,0595 2,69 * 0,011 1,66 0,0003 0,0947-0,15 0,881-0,08 4-0,0090-0,0686-2,09 * 0,045-1,48-0,0007 0,0940 0,05 0,960-0,59 5-0,0011-0,0697-0,11 0,916 1,32-0,0028 0,0912-0,29 0,773 0,43 10-0,0008-0,0784 0,34 0,733-0,43-0,0002 0,0834-0,64 0,527-0,34 15 0,0081-0,0703 1,57 0,125 0,97-0,0003 0,0808-0,64 0,522-0,59 20-0,0030-0,0855-0,11 0,910 1,66-0,0069 0,0772-2,14 * 0,036-3,16 ** Noe: AR = marke adjused mean abnormal reurn CAR = marke adjused cumulave mean abnormal reurns -es and p-value: es sascs for radonal -es Z-value: es sasc for generalzed sgn es ** denoes sgnfcan a he 1% level * denoes sgnfcan a he 5% level 3.2.Analyss of abnormal radng volume paerns Beng a close o he marke supervsor, he Marke Auhory of Euronex Brussels monors prce as well as volume paerns of shares raded on he exchange. In some cases abnormal prce or volume paerns ndcae a possble unequal dsrbuon of prce-sensve nformaon among marke parcpans and, n hs way, a poenal danger for nsder radng. If abnormal volumes are deeced and f here s a danger of unequal dsrbuon of prce- 30 Egh zero ck suspensons are excluded from he analyss.

32 sensve nformaon, hen he Marke Auhory can hal radng n hs share 31. Besdes analyzng he abnormal reurns around radng hals on Euronex Brussels, he behavour of abnormal radng volume around he suspensons s herefore nvesgaed as well n hs secon. Moreover, as poned by, for nsance, Kabr (1992), Holhausen and Verreccha (1990) and Sckel and Verreccha (1994), a smulaneous prce and volume sudy s necessary n order o assess he nformaon conen of an even more accuraely. If radng hals show abnormal radng volumes, han hese radng suspensons are lkely o be assocaed wh major nformaon conen. Kabr (1992) repors hgher han average radng volumes around suspensons, especally n he possuspenson perod. The hghes radng volume occurs on day [+1] and shows a decreasng rend from day [+1] hrough day [+10]. Also, Ferrs, Kumar and Wolfe (1992) repor hgher abnormal radng volumes around he radng suspenson. Ther resuls show ha radng volume reurns o normal levels four weeks afer he radng hal. An ncrease of radng volume afer he radng suspenson s found by Lee, Ready and Segun (1994). Furhermore, he emprcal resuls of Kryzanowsk and Nemroff (1998) and Wu (1998) show an ncrease of radng volume as well. To analyze he abnormal radng volumes around he radng hal, we follow he mehodology of Mchaely, Thaler and Segun (1994) and Wu (1998). Frs, he normal radng urnover for each sock was calculaed over he esmaon perod from day [-100] o day [-21]. The normal radng urnover s defned as he number of raded shares by he number of ousandng shares of sock : VOLUME TURN =, wh = 1, 2,, N and = -100,, -21 [22] SHARES where VOLUME s he number of raded shares of sock on dae, and SHARES s he number of ousandng shares of sock. Nex, on each radng day, he average radng urnover s calculaed across frms: N 1 TURN = TURN, wh = -100,, -21 [23] N = 1 31 Inervew wh Mr. V. Van Dessel, Presden of he Marke Auhory of Euronex Brussels, n June 2000.

33 where N s he number of radng hals n he sample. Because of daa avalably he sample sze was reduced from 102 radng hals o 61 radng hals. The average radng urnover s hen calculaed across all days n he esmaon perod [-100, -21]: TURN = 80 = 21 1 = 100 TURN Fnally, he abnormal radng volume, measured as abnormal radng urnover, can be calculaed over he even wndow [-20, +20] 32 : TURN E AVE =, wh E = -20,, +20 [25] TURN [24] Table 11. Abnormal radng volume paerns around radng hals on Euronex Brussels Even perod Abnormal radng urnover -sasc p-value -20 0,87-0,40 0,6930-15 1,21 0,68 0,5005-10 0,89-0,36 0,7220-5 0,90-0,33 0,7452-4 1,08 0,25 0,8020-3 1,19 0,60 0,5524-2 1,32 1,00 0,3229-1 1,16 0,51 0,6097 1 6,32 16,76 ** 0,0000 2 3,70 8,51 ** 0,0000 3 3,27 7,15 ** 0,0000 4 2,90 5,98 ** 0,0000 5 1,93 2,93 ** 0,0048 10 1,57 1,81 0,0757 15 1,40 1,25 0,2150 20 1,22 0,69 0,4902 Noe: Abnormal radng volume s measured as he abnormal radng urnover,.e. he rao beween he daly radng urnover n he even perod [-20, +20] and he daly average radng urnover across frms and across radng days n he esmaon perod [-100, -21]; Sample sze: n=61 radng hals n he perod 1992-2000 -es and p-value: es sascs for -es ** denoes sgnfcan a he 1% level * denoes sgnfcan a he 5% level 32 Noe ha he sandard devaon can be calculaed as: = 21 1 = 100 ( AV AV ) 1 2 STDEV =, wh = 21 AV = AV. 79 80 = 100

34 The abnormal radng volume s repored n able 11 and fgure 7. Before he radng suspenson no abnormal radng volume paern s presen. On he frs radng day afer he suspenson he average daly radng urnover s sx mes as hgh as normal (sgnfcan a a 1% level). On day [+2] and [+3] he abnormal daly radng urnover s 3.70 and 3.27 (-values are 8.51 and 7.15 respecvely). Table 11 shows ha abnormal volumes are found durng he frs fve radng days afer he suspenson. Fgure 9 clearly shows ha he radng volume has a decreasng rend from day [+1] o day [+20]. I appears ha he radng volume reurns o s normal levels afer en radng days. A smlar volume paern s repored by Wu (1998). The ncrease of he radng volume durng he frs radng days afer he suspenson confrms he fndngs from he abnormal reurn behavor, ndcang ha radng hals are assocaed wh an mporan release of nformaon. Moreover, our resuls confrm he resuls of pror emprcal sudes as Kabr (1992), Ferrs, Kumer and Wolfe 1992), Lee, Ready and Segun (1994), Wu (1998) and Kryzanowsk and Nemroff (1998). Fgure 7. Abnormal radng volume paern around radng hals 7 6 Abnormal volume 5 4 3 2 1 0-20 -18-16 -14-11 -9-7 -5-3 -1 1 3 5 7 9 11 13 15 17 19 Even wndow AV 3.3.Analyss of sock reurn volaly Besdes analyzng abnormal reurn and radng volume behavor around radng hals, recen emprcal sudes also examne sock reurn volaly around suspensons (see e.g. Lee, Ready and Segun, 1994 and Wu, 1998). For, hs s a parameer whch can be of neres for supervsory bodes n order o nsall a radng hal or no. Ths parameer s closely relaed o

35 he objecves of crcu breakers. Ths secon nvesgaes he mpac of radng hals on sock reurn volaly. In fac, s analyzed f a sudden nformaon flux causes abnormal volaly around he radng hal. The sock prce volaly s measured as he varance of daly sock reurns. To oban a benchmark esmae of normal volaly, he varance of daly reurns over he hsorcal perod [-140, -81] was calculaed 33. Analogously, he varances for he complee suspenson perod [-20, +20], for he presuspenson perod [-20, -1] and for he possuspenson perod [+1, +20] were calculaed. Sknner (1989) shows ha he medan s more represenave of he rue change n volaly han he mean. Therefore, able 12 ess wheher he medan varance around he suspenson ncreases compared o he medan hsorcal varance (VAR hs). I appears ha he medan varance of he complee even perod [-20, +20] s abou wce ha of he hsorcal varance. To es f hese medans are sgnfcanly dfferen from each oher, a Wlcoxon sgned rank es was used. The Z-score for he Wlcoxon sgned rank es ha he medan varance s he same n he wo perods s 4.30, whch s sgnfcan a he 1% level. Ths means ha he varance n he even perod [-20, +20] s hgher han he hsorcal varance. However, he hgher varance n he even perod s solely due o he large prce jump over he radng hal. Ths can be seen when he even wndow s broken up n a presuspenson and a possuspenson perod. Alhough he varance of he presuspenson perod (VAR pre) slghly ncreases compared o he hsorcal varance (VAR hs) and slghly declnes n he possuspenson perod (VAR pos compared o VAR pre), he Z-values of he Wlcoxon sgned rank es are nsgnfcan. Ths means ha he varances are no sgnfcanly dfferen n he dfferen perods (see able 12). Smlar resuls are found f we use abnormal nsead of raw reurns. Therefore, one can conclude ha he volaly does no ncrease pror o or afer he nsalmen of a radng hal. Ths evdence conradcs he resuls of Ferrs, Kumar and Wolfe (1992) and Lee, Ready and Segun (1994) for US markes and Wu (1998) for he sock exchange of Hong Kong. Ths s an mporan fndng because mples ha he Marke Auhory does no have o worry abou ncreasng volaly around suspensons. Therefore, 33 Smlar o Ferrs, Kumar and Wolfe (1992) a conservave choce of he hsorcal perod o calculae he normal volaly was used, by opng for a dsan perod [-140, -81] compared o he even perod [-20, +20]. Ferrs, Kumar and Wolfe (1992) use a hsorcal perod [-210, -151] compared o an even perod [-60, +60].

36 he Marke Auhory should no focus on volaly as a parameer for her regulaory polcy owards he dssemnaon of prce-sensve nformaon. Our fndngs are especally neresng because he key ssue n he decson by he Marke Auhory o hal radng s he expeced prce mpac of he news, no he expeced volaly 34. Table 12. Volaly paerns around radng suspensons RAW RETURNS ABNORMAL RETURNS MEDIAN Z-value p-value MEDIAN Z-value p-value VAR hs (-140, -81) 0,000269-4,30 ** 0,0000 0,000237-4,42 ** 0,0000 VAR susp (-20,+20) 0,000598 0,000485 VAR hs (-140, -81) 0,000269-0,30 0,3837 0,000237-0,12 0,4522 VAR pre (-20,-1) 0,000280 0,000238 VAR pre (-20,-1) 0,000280-0,19 0,4248 0,000238-0,70 0,2411 VAR pos (+1, +20) 0,000277 0,000256 VAR hs (-140, -81) 0,000269-0,43 0,3336 0,000237-1,22 0,1111 VAR pos (+1, +20) 0,000277 0,000256 Noe: VAR hs refers o he sock reurn varance calculaed over he esmaon perod [-140, -81]; VAR susp refers o he sock reurn varance calculaed over he even perod [-20, +20]; VAR pre refers o he sock reurn varance calculaed over he presuspenson perod [-20, -1] and VAR pos refers o he sock reurn varance calculaed over he possuspenson perod [+1, +20] Sample sze: n=82 radng hals n he perod 1992-2000 Z-value and p-value: es sascs for he Wlcoxon sgned rank es ha he varance s he same n he wo perods Abnormal reurns are calculaed usng a marke adjused model ** denoes sgnfcan a he 1% level * denoes sgnfcan a he 5% level 4.Conclusons Because nvesors care abou he qualy of he fnancal markes, s of he upmos mporance for he growh and developmen of European fnancal markes as a fnancng source for companes o exhb he hghes levels of marke qualy and marke negry. Ths s especally he case wh respec o he ad-hoc dsclosure of prce-sensve nformaon durng he openng hours of he sock exchange. Ths paper emprcally examnes radng 34 Inervew wh Mr. V. Van Dessel, Presden of he Marke Auhory of Euronex Brussels, n June 2000.

37 suspensons on he Euronex Brussels. The sudy s of parcular neres because of hree reasons. Frs, hese suspensons occur n order o compel frms o dsclose new nformaon o he marke. Ths s dfferen from suspensons of sock radng a mes of mbalances n buy or sell orders and exreme volaly. In parcular, hs paper analyzed he use of radng hals o dssemnae new nformaon. If here arses a suaon of unequal dsrbuon of prcesensve nformaon among marke parcpans because of an nformaon leakage pror o a press release and here s a danger for nsder radng, he Marke Auhory of Euronex Brussels can hal radng n he shares of he company a ssue. Ths paper examned he effcency of radng hals o dssemnae prce-sensve nformaon among marke parcpans on Euronex Brussels n order o manan a hgh level of marke qualy. Secondly, pror sudes show conflcng resuls wh regard o he effecveness of radng suspensons. Boh effcen and neffcen sock prce adjusmens are documened. Alhough prevous emprcal sudes on he NYSE, he Canadan sock marke and he London Sock Exchange show mxed resuls on he effcency of radng hals, he use of radng suspensons on smaller sock exchanges as Sockholm or Amserdam seemed more promsng. Ths paper analyzes wheher he emprcal resuls of Euronex Brussels are n lne wh hese smaller sock exchanges. Thrdly, hs emprcal sudy adds o he debae wheher an exchange can add value by ensurng marke negry, compared o a sngle cenral, admnsrave regulaory auhory whch s promoed by he European Commsson. In hs sudy, we focus on hree dfferen parameers: sock reurn, radng volume and reurn volaly o deermne n a robus way he effcency of radng suspensons. Examnng he enre sample of radng hals we fnd ha here s no any ancpaory or unusual reurn behavor before he suspenson. Nor s here any sgnfcan abnormal reurn paern n he possuspenson perod, meanng ha here s a complee and nsananeous adjusmen o he new nformaon released durng he radng hal. I seems ha he Marke Auhory was very effecve concernng he correc mng o nsall a radng suspenson. Moreover, he resuls also ndcae he sem-srong form nformaonally effcency of Euronex Brussels. Our resuls, furhermore, show ha radng hals are assocaed wh an mporan release of

38 nformaon. Ths s no surprsngly because he radng hals on Euronex Brussels are generally assocaed wh he release of nonroune nformaon, whch s exremely prcesensve, such as mergers and acqusons or resrucurngs. On average, he magnude of he abnormal reurn over he span of he radng hals was over 8%. An analyss of hree subsamples based on he news caegores, shows smlar resuls. On average, mergers and acqusons have a posve prce mpac (+8.03%), whle resrucurngs have a negave prce mpac (-3.66%). Our nvesgaon shows ha here s no ancpaory or unusual reurn behavour before he suspenson. Nor s here any sgnfcan abnormal reurn paern n he pos-suspenson perod. I ndcaes ha here s a complee and nsananeous adjusmen o he new nformaon released durng radng hals. I seems ha he Exchange was successful concernng he correc mng o nsall a radng suspenson as well as o rensae radng. Also, an analyss of he good news and he bad news subsamples confrms hese resuls. Nex, he abnormal radng volume was examned as well. We fnd an ncrease of he radng volume durng he frs fve radng days of he radng hals. The radng volume paern shows a decreasng rend reurnng o normal levels approxmaely en radng days afer he suspenson. The abnormal volume analyss confrmed he resuls of he abnormal reurn analyss. Fnally, he analyss of sock reurn volaly shows ha volaly does no ncrease pror o or afer he nsalmen of a radng hal. Overall, our resuls confrm he effcency of radng hals o dssemnae prce-sensve nformaon among marke parcpans on Euronex Brussels. I appears ha, n lne wh oher small sock exchanges as Sockholm or Amserdam, hs regulaory acon of he Marke Auhory on Euronex Brussels o dssemnae prce-sensve new nformaon among marke parcpans s very effcen. One explanaon for small sock exchanges o be more effcen n usng radng hals as a regulaory measure s he closeness of supervsory bodes of he exchange. For, he exchange s more famlar wh s radng sysem and s screenng devces, has closer conac wh marke parcpans and can reac more mely when marke rregulares are deeced. Wh respec o he dssemnaon of prce-sensve nformaon and he nsalmen of radng hals, he emprcal resuls hus show ha an allocaon of regulaory powers close o he marke operaes effcenly.

39 Appendx A. News caegores 1.Corporae Acqusons 10.Prelmnary negoaons 11.Acquson: formal proposal or agreemen reached 12.Merger: formal proposal or agreemen reached 2.Takeover arges (suspended frm = arge) 20.Rumor or prelmnary dsclosure of possble akeover 21.Formal akeover-bd 22.Subsanal change n ownershp, followed by formal bd or prce manenance 23.Proposal rejeced or whdrawn or negoaons ermnaed 24.Leveraged buyous 3.Fnancal Informaon 30.Earnngs announcemens (negave news) 31.Managemen or analys earnngs forecas 32.Dvdend announcemen (dvdend reducons) 4.Resrucurng 40.Dvesures (sale of busness segmens, parcpaons and spn-offs) 41.Announced nen o repurchase sock 42.Capal Srucure Changes (sock/deb ssues) 43.Exernal resrucurng plans (naed plans or announced progress of resrucurng) 44.Inernal resrucurng (e.g. new managemen, personnel cu) 45.Announcemen of fnancal dffcules, corporae reorganzaon ordered by cour (credors) or lqudaon of he company 5.Legal ssues 50.Announced sar of a legal acon 51.Legal decsons n favor of he frm 52.Legal decsons agans he frm 53.Legal decson concernng he frm 54.Announcemen and saus of bankrupcy 55.Involvemen n crmnal procedure 56.Oher regulaory measure (e.g. by Bankng and Fnance Commsson) 6.Mscellaneous 60.Imporan conrac 61.Tradng hal on oher sock exchange 7.No news 70.Unknown or no news 71.Abnormal prce behavor (nsder radng, sock prce manpulaon)

40 Appendx B. Resuls for he marke model and Dmson model abnormal reurns Fgure B.1. Marke model mean CARs for he enre sample from 1992 o 2000 0,0700 0,0600 0,0500 CAR 0,0400 0,0300 0,0200 0,0100 0,0000-20 -18-16 -14-12 -10-8 -6-4 -2 0 2 4 6 8 10 12 14 16 18 20 Even wndow Noe: CAR = marke model cumulave mean abnormal reurns Sample sze: n=82 suspensons CAR Fgure B.2. Dmson model mean CARs for he enre sample from 1992 o 2000 0,0600 0,0500 0,0400 CAR 0,0300 0,0200 0,0100 0,0000-0,0100-20 -18-16 -14-12 -10-8 -6-4 -2 0 2 4 6 8 10 12 14 16 18 20 Even wndow CAR Noe: CAR = Dmson model cumulave mean abnormal reurns Sample sze: n=82 suspensons

41 Table B.1. Marke model and Dmson model mean ARs and CARs for he enre sample from 1992 o 2000. Marke model (n = 82) Dmson model (n = 82) AR CAR -es p-value Z-value AR CAR -es p-value Z-value -20 0,0007 0,0007 0,26 0,793-0,31-0,0001-0,0001-0,14 0,889-0,54-15 -0,0023 0,0011-1,33 0,187-1,64-0,0010 0,0010-1,03 0,305-1,21-10 0,0027 0,0071 1,92 0,058 1,02 0,0019 0,0056 1,91 0,059-0,10-5 0,0042 0,0195 2,42 * 0,017 1,90 0,0042 0,0148 2,30 * 0,024 2,55 * -4-0,0009 0,0186-0,74 0,460-0,75-0,0008 0,0140-0,69 0,489 0,12-3 0,0009 0,0195 0,64 0,521-0,31-0,0011 0,0130-0,18 0,855-0,99-2 -0,0013 0,0182 1,07 0,288 0,35-0,0010 0,0120 0,84 0,405-0,54-1 0,0047 0,0229 1,84 0,069 1,24 0,0034 0,0154 1,27 0,207 1,00 0 0,0343 0,0572 26,95 ** 0,000 2,34 * 0,0345 0,0500 26,99 ** 0,000 2,77 ** 1-0,0006 0,0566 1,11 0,271 0,80-0,0017 0,0483 0,47 0,641 0,78 2-0,0044 0,0522-1,51 0,134-0,97-0,0040 0,0443-1,29 0,200-0,32 3 0,0006 0,0528 0,82 0,411 1,46 0,0009 0,0452 0,78 0,436 1,66 4-0,0003 0,0526 0,30 0,766 0,13-0,0020 0,0433-0,62 0,538-1,21 5 0,0009 0,0535 0,64 0,523 0,13 0,0006 0,0438 0,39 0,698 1,00 10-0,0028 0,0436-0,77 0,445-0,53-0,0029 0,0342-1,25 0,213-0,54 15 0,0009 0,0434 0,24 0,814-0,75 0,0013 0,0341 0,11 0,910-0,10 20-0,0030 0,0311-0,81 0,421-1,86-0,0037 0,0201-1,06 0,292-1,43 Noe: AR = marke model or Dmson model mean abnormal reurn CAR = marke model or Dmson model cumulave mean abnormal reurns Sample sze: n=82 suspensons -es and p-value: es sascs for radonal -es Z-value: es sasc for generalzed sgn es ** denoes sgnfcan a he 1% level * denoes sgnfcan a he 5% level

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