Determinants of Volume in Dark Pool Crossing Networks
Mark J. Ready
University of Wisconsin - Madison - Department of Finance, Investment and Banking
August 16, 2014
AFA 2010 Atlanta Meetings Paper
I investigate determinants of trading volume for NASDAQ stocks in the two largest “dark pools” that cater to large institutional trades: Liquidnet and POSIT. I find that these dark pools capture a lower faction of institutional volume for stocks with higher levels of adverse selection, which is consistent with the prediction from Zhu (2013), but inconsistent with the prediction from Ye (2011). Orders in stocks with higher percentage spreads are less likely to be routed to these dark pools, which is consistent with the predictions from Zhu (2013) and Buti et al (2011a) but inconsistent with the predictions from Hendershott and Mendelson (2000) and Degryse et al. (2009). I also show that usage of these dark pools is lower for stocks with the lowest dollar spreads per share, which is consistent with trader routing of these stocks to other venues in order to satisfy soft-dollar agreements.
Number of Pages in PDF File: 70
Keywords: Microstructure, Liquidity, Trading Volume, Simulated Method of Moments
JEL Classification: G12, G14working papers series
Date posted: March 17, 2009 ; Last revised: April 17, 2014
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