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)

February 13, 2015

Journal of Financial Economics (JFE), Forthcoming

Abstract:     
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: G14


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Date posted: December 2, 2012 ; Last revised: June 26, 2015

Suggested Citation

Comerton-Forde, Carole and Putniņš, Tālis J., Dark Trading and Price Discovery (February 13, 2015). Journal of Financial Economics (JFE), Forthcoming. 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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