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The Determinants of ETF Trading Pauses on August 24th, 2015

Feb. 23, 2016

Austin Gerig and Keegan Murphy


This paper analyzes the causes of extreme price volatility that triggered limit up-limit down (LULD) trading pauses in many exchange traded funds (ETFs) on August 24th, 2015.  We find that LULD pauses in ETFs resulted from both a spike in trading volume and a pullback in liquidity supply.  Furthermore, we find that an ETF’s correlation with the S&P 500 index was a strong and significant predictor of LULD pauses and that an ETF’s turnover (average daily share volume/shares outstanding) was negatively related to LULD pauses.  Finally, to demonstrate the explanatory power of these factors, we show that volume spikes, liquidity drops, S&P 500 correlations, and turnover performed very well at separating otherwise similar ETFs into those that paused and those that did not.


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