Abstract

http://ssrn.com/abstract=2183392
 
 

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Dark Trading and Price Discovery


Carole Comerton-Forde


University of Melbourne - Department of Finance; Financial Research Network (FIRN)

Tālis J. Putniņš


University of Technology, Sydney - UTS Business School; Stockholm School of Economics in Riga; Financial Research Network (FIRN)

September 12, 2014


Abstract:     
Regulators around the world are concerned that growth in dark trading may harm price discovery. We show that block and non-block dark trades affect price discovery differently. We find no evidence that block trades in the dark impede price discovery. In contrast, high levels of non-block dark trading harms price discovery and reduces the informational efficiency of prices, while low levels of non-block dark trading can be beneficial. One reason non-block dark trading can be harmful is that the lack of pre-trade information reduces the market’s ability to infer and incorporate private information. Uninformed trades are more likely to execute in the dark, which increases adverse selection risk and bid-ask spreads in the transparent exchange.

Number of Pages in PDF File: 50

Keywords: dark pool, price discovery, information share, efficiency

JEL Classification: G14

working papers series





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Date posted: December 2, 2012 ; Last revised: September 12, 2014

Suggested Citation

Comerton-Forde, Carole and Putniņš, Tālis J., Dark Trading and Price Discovery (September 12, 2014). Available at SSRN: http://ssrn.com/abstract=2183392 or http://dx.doi.org/10.2139/ssrn.2183392

Contact Information

Carole Comerton-Forde (Contact Author)
University of Melbourne - Department of Finance ( email )
198 Berkeley Street
Carlton VIC 3010
Australia
Financial Research Network (FIRN)
C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia
HOME PAGE: http://www.firn.org.au

Talis J. Putnins
University of Technology, Sydney - UTS Business School ( email )
PO Box 123
Broadway
Sydney
Australia
+61 2 95144022 (Phone)
Stockholm School of Economics in Riga ( email )
Strelnieku Iela 4a
Riga, LV1010
Latvia
+371 67015841 (Phone)
Financial Research Network (FIRN)
C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia
HOME PAGE: http://www.firn.org.au

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References:  30
Citations:  4
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