Diving into Dark Pools
University of Toronto - Rotman School of Management
Bocconi University - Department of Finance
Ingrid M. Werner
The Ohio State University - Fisher College of Business
November 28, 2011
Charles A. Dice Center Working Paper No. 2010-10
Fisher College of Business Working Paper No. 2010-03-010
This paper examines unique data on dark pool activity for a large cross-section of US stocks in 2009. Dark pool activity is concentrated in liquid stocks. Nasdaq (AMEX) stocks have significantly higher (lower) dark pool activity than NYSE stocks controlling for liquidity. For a given stock, dark pool activity is significantly higher on days with high share volume, high depth, low intraday volatility, low order imbalances relative to share volume, and low absolute returns. Results show that increased dark pool activity improves market quality measures such as spreads, depth, and short-term volatility. The relationship between dark pool activity and measures of price-efficiency is more complex.
Number of Pages in PDF File: 59
Keywords: Dark pools, fragmentation, market quality, price discovery, market efficiency, SEC, microstructure
JEL Classification: G10, G12, G14, G18, G20working papers series
Date posted: June 26, 2010 ; Last revised: November 29, 2011
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