The Effects of Trading Suspension on Stock Turnover, Volatility and Price Discovery in Tehran Stock Exchange

Although there are many researches about the impacts of trading suspension, its positive and negative effects remain unclear. Supporters of trading suspension claim that this mechanism will result in having more time for data assessment. Thus, no specific group can abuse the situation or utilize it unfairly just for their own benefits. They also claim that trading suspension can lead to a rise in information contents of dividends value and fall in uncertainty. These items can protect the investors from unreasonable volatility of stock value which results in better price discovery. On the other hand, the critics of trading suspension believe that this issue can delay the process of price discovery and impose extra cost on those investors who could not trade the mentioned dividend. This can also reduce the motivation of investors. In this research, like the investigations in other countries, the negative and positive effects of trading suspension on Tehran Stock Exchange have been investigated. Indeed, the purpose of this research is to understand the effects of trading suspension on trading volume and volatility of return and abnormal return. Sample population includes all companies in TSE. The data were collected from 41 companies, selected by Cochrane sampling method, between 1384 and 1388 (2005-2009) and analyzed using SPSS software. The results indicate that trading suspension has resulted in increase of trading volume and return volatility in abnormal period (near the trading suspension). Decrease in abnormal return after the suspension has resulted in price discovery.