Dark Trading and the Fundamental Information in Stock Prices

62 Pages Posted: 9 Nov 2018 Last revised: 22 May 2019

See all articles by Jonathan Brogaard

Jonathan Brogaard

University of Utah - David Eccles School of Business

Jing Pan

Southern Methodist University

Date Written: May 15, 2019

Abstract

Theory suggests dark pools may facilitate or discourage price informativeness. We find that more dark trading leads to greater fundamental information in stock prices. To overcome endogeneity concerns we exploit the SEC’s Tick-Size Pilot Program that resulted in a large exogenous shock to dark pool trading. The results cannot be explained by lit market liquidity, high frequency trading, or price efficiency. In support of the information acquisition interpretation, we find a shift in the information acquisition through SEC EDGAR searches for the treatment firms. Overall, the evidence suggests dark trading improves the price informativeness of stock prices.

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

JEL Classification: G14; G18

Suggested Citation

Brogaard, Jonathan and Pan, Jing, Dark Trading and the Fundamental Information in Stock Prices (May 15, 2019). Available at SSRN: https://ssrn.com/abstract=3281472 or http://dx.doi.org/10.2139/ssrn.3281472

Jonathan Brogaard (Contact Author)

University of Utah - David Eccles School of Business ( email )

1645 E Campus Center Dr
Salt Lake City, UT 84112-9303
United States

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

Jing Pan

Southern Methodist University ( email )

Cox School of Business
6212 Bishop Blvd
Dallas, TX 75275
United States

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