Dark Trading and Price Discovery
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)
January 6, 2015
Regulators globally are concerned that dark trading harms price discovery. We show that dark trades are less informed than lit trades. High levels of dark trading increase adverse selection risk on the lit exchange by increasing the concentration of informed traders. Using both high- and low-frequency measures of informational efficiency we find that low levels of non-block dark trading are benign or even beneficial for informational efficiency, but high levels are harmful. In contrast, we find no evidence that block trades in the dark impede price discovery.
Number of Pages in PDF File: 54
Keywords: dark pool, price discovery, information share, efficiency
JEL Classification: G14working papers series
Date posted: December 2, 2012 ; Last revised: January 9, 2015
© 2015 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo6 in 0.375 seconds