Transparency and Market Fragmentation
70 Pages Posted: 3 Dec 2016 Last revised: 15 May 2020
Date Written: May 15, 2020
We study a dynamic model where a security is traded in two venues by an insider and noise traders, prices are set by competitive dealers, and markets are pre- and post-trade transparent. We consider two regimes, as the insider may or not disclose his trades. Without disclosure, a reduction in pre-trade transparency impairs (enhances) price discovery in the short (long) run. Conversely, with disclosure, price discovery is unaffected by transparency. Furthermore, disclosure can hamper short-run price discovery compared to the no disclosure case. Finally, disclosure reduces the cross-market price comovement due to fundamental information.
Keywords: Fragmentation, Informational Integration, Disclosure of Insider Trades, Order flow transparency, Dissimulation, Market Transparency, Informational Efficiency, Price Comovement
JEL Classification: G10, G12, G14
Suggested Citation: Suggested Citation