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Effects of Lit and Dark Market Fragmentation on Liquidity

Journal of Financial Markets, forthcoming

63 Pages Posted: 30 Aug 2011 Last revised: 2 Mar 2017

Carole Gresse

Université Paris-Dauphine

Date Written: February 25, 2017

Abstract

Based on data from eight exchanges and a trade reporting facility for a large sample of LSE- and Euronext-listed equities, this article investigates how lit and dark market fragmentation affects liquidity. Neither dark trading, nor fragmentation between lit order books, is found to harm liquidity. Lit fragmentation improves spreads and depth across markets and locally on the primary exchange, or at worst does not affect them. Benefits are greater for large stocks and stocks with less electronic trading. Lit fragmentation however harms the depth of small stocks. Adverse effects on the depth of large stocks result from algorithmic trading and not from fragmentation.

Keywords: Fragmentation, Liquidity, Multilateral Trading Facility (MTF), OTC trading, Internalization, Dark trading

JEL Classification: G14, G15, G18

Suggested Citation

Gresse, Carole, Effects of Lit and Dark Market Fragmentation on Liquidity (February 25, 2017). Journal of Financial Markets, forthcoming. Available at SSRN: https://ssrn.com/abstract=1918473 or http://dx.doi.org/10.2139/ssrn.1918473

Carole Gresse (Contact Author)

Université Paris-Dauphine ( email )

DRM
Pôle Universitaire Léonard de Vinci
Paris La Défense cedex, 92916
France
+33 (0)1 41 16 76 15 (Phone)
+33 (0)1 41 16 76 37 (Fax)

HOME PAGE: http://www.carolegresse.com

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