Dark Pool Trading and Information Acquisition

Abstract

Theory suggests that dark pools may facilitate or discourage information acquisition. We find that more dark pool trading leads to greater information acquisition. To overcome endogeneity concerns, we exploit a large exogenous decrease to dark pool trading that results from the implementation of the Security and Exchange Commission’s (SEC’s) Tick Size Pilot Program. The results cannot be explained by lit venue liquidity, algorithmic trading, or informational efficiency. In support of the information acquisition interpretation, we document a shift in information acquisition through SEC EDGAR searches. Overall, the evidence suggests that dark pool trading increases information acquisition.

Keywords: Dark pools, informed trades, earnings information, price informativeness

JEL Classification: G14; G18