Price Discovery and Convergence in Fragmented Securities Markets

International Journal of Managerial Finance (2016), Vol. 12 Issue 4, pp.381-407

Posted: 12 Jun 2015 Last revised: 6 Aug 2016

See all articles by Benjamin Clapham

Benjamin Clapham

Goethe University Frankfurt Faculty of Economics and Business Administration

Kai Zimmermann

Goethe University Frankfurt Faculty of Economics and Business Administration

Date Written: July 1, 2016

Abstract

This paper studies price discovery and price convergence in securities trading within a fragmented market environment where stocks are traded on multiple venues. Although alternative venues currently increase their market share, trading on these venues instantly dries out in case the dominant market switches to a call auction. In this situation, alternative markets await and adopt the official price signal of the dominant market although prices on these venues indicate price discovery. This phenomenon remains persistent at different levels of market fragmentation, indicating that alternative trading venues fully accept the price leadership role of the dominant market during call auctions, no matter their own market share.

Keywords: Securities Markets, Price Discovery, Fragmentation

JEL Classification: G10, G14, G15, G18

Suggested Citation

Clapham, Benjamin and Zimmermann, Kai, Price Discovery and Convergence in Fragmented Securities Markets (July 1, 2016). International Journal of Managerial Finance (2016), Vol. 12 Issue 4, pp.381-407, Available at SSRN: https://ssrn.com/abstract=2616663

Benjamin Clapham (Contact Author)

Goethe University Frankfurt Faculty of Economics and Business Administration ( email )

Theodor-W.-Adorno-Platz 4
Frankfurt am Main, 60323
Germany

Kai Zimmermann

Goethe University Frankfurt Faculty of Economics and Business Administration ( email )

Grueneburgplatz 1
Frankfurt am Main, 60323
Germany

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