Abstract

http://ssrn.com/abstract=1571416
 
 

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Dark Pool Trading Strategies


Sabrina Buti


University of Toronto - Rotman School of Management

Barbara Rindi


Bocconi University and IGIER

Ingrid M. Werner


The Ohio State University - Fisher College of Business

Ottobre 17, 2011

Charles A. Dice Center Working Paper No. 2010-6
Fisher College of Business Working Paper No. 03-006
AFA 2012 Chicago Meetings Paper

Abstract:     
We model a financial market where traders have access both to a fully transparent limit order book (LOB) and to an opaque Dark Pool (DP). When a DP is introduced to a LOB market, orders migrate to the DP from the LOB, but overall trading volume increases. Moreover, inside quoted depth in the LOB decreases, but quoted spreads tend to narrow in deep books and widen in shallow ones. DP market share is higher when LOB depth is high, when LOB spread is narrow, when the tick size is large and when traders seek protection from price impact. When depth decreases on one side of the LOB, liquidity is drained from the DP. When Flash orders provide select traders with information about the state of the DP, more orders migrate from the LOB to the DP but overall market quality improves.

Number of Pages in PDF File: 67

Keywords: Dark Pool, Limit Order Book, Trading Strategies

JEL Classification: G10, G20, G24, D40

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Date posted: March 18, 2010 ; Last revised: November 11, 2011

Suggested Citation

Buti, Sabrina and Rindi, Barbara and Werner, Ingrid M., Dark Pool Trading Strategies (Ottobre 17, 2011). Charles A. Dice Center Working Paper No. 2010-6 ; AFA 2012 Chicago Meetings Paper. Available at SSRN: http://ssrn.com/abstract=1571416 or http://dx.doi.org/10.2139/ssrn.1571416

Contact Information

Sabrina Buti (Contact Author)
University of Toronto - Rotman School of Management ( email )
105 St. George Street
Toronto, Ontario M5S 3E6
Canada
+1 416 946 0551 (Phone)
Barbara Rindi
Bocconi University and IGIER ( email )
Via Roentgen 1
Milan, 20136
Italy
+39 58365328 (Phone)
HOME PAGE: http://faculty.unibocconi.eu/barbararindi
Ingrid M. Werner
The Ohio State University - Fisher College of Business ( email )
2100 Neil Avenue
Columbus, OH 43210-1144
United States
614-292-6460 (Phone)
614-292-2418 (Fax)

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