Should we be afraid of the dark? Dark trading and market quality
- Publication Type:
- Journal Article
- Journal of Financial Economics, 2016, 122 (3), pp. 456 - 481
- Issue Date:
|Should we be afraid of the dark - JFE forthcoming.pdf||902.93 kB|
Copyright Clearance Process
- Recently Added
- In Progress
- Open Access
This item is currently unavailable due to the publisher's embargo.
The embargo period expires on 31 Dec 2018
© 2016 We exploit a unique natural experiment—recent restrictions of dark trading in Canada and Australia—and proprietary trade-level data to analyze the effects of dark trading. Disaggregating two types of dark trading, we find that dark limit order markets are beneficial to market quality, reducing quoted, effective, and realized spreads and increasing informational efficiency. In contrast, we do not find consistent evidence that dark midpoint crossing systems significantly affect market quality. Our results support recent theory that dark limit order markets encourage aggressive competition in liquidity provision. We discuss implications for the regulation of dark trading and tick sizes.
Please use this identifier to cite or link to this item: