The Over-the-Counter Market and New York Stock Exchange Trading Halts

This paper examines the over-the-counter market activities for stoc ks temporarily suspended by the New York Stock Exchange. Unlike previous studies, the authors use transaction-to-transaction data on the NASD AQ during New York Stock Exchange trading halts to investigate the price adjustment process between market equilibria. The evidence indicates that while being halted by the New York Stock Exchange, the same stocks have exhibited significantly greater volatility in the over-the-counter market. Since the volatile price movement is mainly random and provides no arbitraging opportunities for the over-the-counter market traders, the authors do not find support for the proposal that trading halts should be mandatory for all trading locations. Copyright 1988 by MIT Press.