Public Information in Fragmented Markets
Journal of Financial Markets and Portfolio Management 2012, 26(2). 179–215
Posted: 19 Aug 2010 Last revised: 17 Aug 2012
Date Written: April 4, 2012
This paper studies the impact of public information on trading and market fragmentation in FTSE 100 stocks on the LSE and on Chi-X, the largest multilateral trading facility in Europe. We proxy daily public information through newswire messages which we dierentiate by their ex-ante sentiment. In practice, traders spend a considerable amount of money to subscribe to newswires. Such newswires represent much of the real-time public information they receive. We find that overall liquidity decreases as a result of daily negative public information and that it does not change on positive days. Trading activity strongly increases generally on days with public information. On both positive and negative days, private information shifts from Chi-X to the LSE. Informed trading resorts to the LSE during times of high levels of public information.The shift to the LSE is driven by a decrease of private information on Chi-X on positive days and by an increase in private information on the LSE on negative days. Altogether, we find asymmetric reactions to public information and public information eects on market fragmentation. Our study confirms the important role that public information has in finding the efficient price in equity markets.
Keywords: Public Information, Firm Specific News, Liquidity, Price Discovery, Market Fragmentation, MiFID, Multilateral Trading Facilities
JEL Classification: G10, G14, G18
Suggested Citation: Suggested Citation