Dark Pool Trading and Information Acquisition
The Review of Financial Studies, Forthcoming
66 Pages Posted: 9 Nov 2018 Last revised: 20 Apr 2021
Date Written: April 15, 2021
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: Suggested Citation