Dark Pool Trading and Information Acquisition

The Review of Financial Studies, Forthcoming

66 Pages Posted: 9 Nov 2018 Last revised: 20 Apr 2021

See all articles by Jonathan Brogaard

Jonathan Brogaard

University of Utah - David Eccles School of Business

Jing Pan

Southern Methodist University (SMU)

Date Written: April 15, 2021

Abstract

Theory suggests that dark pools may facilitate or discourage information acquisition. We find that more dark pool trading leads to greater information acquisition. We measure information acquisition using stock price dynamics around earnings announcements. 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. A battery of additional tests, such as documenting a shift in SEC EDGAR searches, supports the information acquisition interpretation.

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

JEL Classification: G14; G18

Suggested Citation

Brogaard, Jonathan and Pan, Jing, Dark Pool Trading and Information Acquisition (April 15, 2021). The Review of Financial Studies, Forthcoming, 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 (SMU) ( email )

6212 Bishop Blvd.
Dallas, TX 75275
United States

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