Trading suspension, a widely adopted regulatory rule, prevents information from being incorporated into stock prices. Using a sample of 3,205 long-lasting suspension events between 2004–2018, we show that mutual funds holding suspended stocks generally fail to adjust for stale prices, generating stale net asset values (NAVs). We find that investors exploit predictable fund performance that realizes quickly after trading resumes: flows positively respond to firm-specific news about suspended stocks in fund portfolios. Portfolio disclosure plays a key informational role in distorting flows. Our findings suggest that regulatory interventions on trading activities can create negative externalities among mutual fund investors.​

Keywords: Trading Suspension, Mutual Funds, Fund Flows, Portfolio Disclosure.

JEL classifications: G11, G23, G18, G28​