Why Do Markets Fragment? A Panel-Data Analysis of Off-Exchange Trading
47 Pages Posted: 8 Feb 2001
Date Written: March 2, 2001
Abstract
We use unique data from Australia to analyze the nature and determinants of order flow frag-mentation across all trades and every security traded. Our panel regression estimates shows that cross-sectional difference in off-market trading (ECNs, after-hours and upstairs trading alike) is driven by institutional trading interest (trading volume, indexation) and liquidity (bid-ask spread and market depth). At the transaction level, we study upstairs and primary downstairs block trades and find strong evidence that trade size, downstairs liquidity and a trader?s reputation af-fect his market selection decision. We conclude that there is significant competition between markets in highly liquid securities and their coexistence benefits those in a position to switch.
Keywords: Fragmentation, Off-Market Trading, Transparency, Anonymity, Electronic Communication Networks
JEL Classification: G14
Suggested Citation: Suggested Citation
Kingsley Y. L. Fong
University of New South Wales - School of Banking and Finance ( email )
UNSW Business School
High St
Sydney, NSW 2052
Australia
Financial Research Network (FIRN)
C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia
HOME PAGE: http://www.firn.org.au
Peter Lawrence Swan (Contact Author)
University of New South Wales (UNSW Sydney ( email )
School of Banking and Finance
UNSW Business School
Sydney NSW, NSW 2052
Australia
+61 2 9385 5871 (Phone)
+61 2 9385 6347 (Fax)
HOME PAGE: http://https://www.business.unsw.edu.au/our-people/peterswan
Financial Research Network (FIRN)
C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia
HOME PAGE: http://www.firn.org.au
