Diving Into Dark Pools
Charles A. Dice Center Working Paper No. 2010-10
59 Pages Posted: 26 Jun 2010 Last revised: 29 Mar 2016
Date Written: November 17, 2011
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.
Keywords: Dark pools, fragmentation, market quality, price discovery, market efficiency, SEC, microstructure
JEL Classification: G10, G12, G14, G18, G20
Suggested Citation: Suggested Citation