The Effect of Disclosure Opacity on Trading Opacity: New Evidence from ADR Trades in Dark Pools

54 Pages Posted: 7 May 2019

See all articles by Thomas Jason Boulton

Thomas Jason Boulton

Miami University

Marcus V. Braga-Alves

Pace University

Bidisha Chakrabarty

Saint Louis University - Richard A. Chaifetz School of Business

Date Written: March 25, 2019

Abstract

As volume increasingly migrates away from exchanges to dark pools, we revisit the link between disclosure opacity and volume, conditional on the choice to trade in a dark venue. We exploit the exogenous variation in home-country reporting opacity to examine how disclosure quality affects the fraction of ADR volume traded in dark pools. Using multiple metrics for reporting quality and controlling for firms’ information environment, we find that dark pool volume is positively correlated with home-country reporting opacity. This relationship holds after controlling for observable differences between ADRs and other securities that trade in dark pools (matched sample analysis) and the possible endogenous determination of home-country reporting opacity and dark pool volume. The positive relation is stronger for ADRs held by institutions with low turnover and diversified holdings, and weaker for ADRs with greater ownership by institutions with large and stable ownership positions. Bid-ask spreads are positively correlated with dark pool volume for ADRs, consistent with research that finds a negative effect of dark pool trading on market quality.

Keywords: Accounting quality, Disclosure, Dark pools, Liquidity, Opacity

JEL Classification: G10, G11, M41

Suggested Citation

Boulton, Thomas Jason and Braga-Alves, Marcus V. and Chakrabarty, Bidisha, The Effect of Disclosure Opacity on Trading Opacity: New Evidence from ADR Trades in Dark Pools (March 25, 2019). Pace University Finance Research Paper No. 2019/01, Available at SSRN: https://ssrn.com/abstract=3359992 or http://dx.doi.org/10.2139/ssrn.3359992

Thomas Jason Boulton (Contact Author)

Miami University ( email )

3028 Farmer School of Business
Oxford, OH 45056
United States
(513) 529-1563 (Phone)
(513) 529-8598 (Fax)

Marcus V. Braga-Alves

Pace University ( email )

1 Pace Plaza
New York, NY 10038-1502
United States

Bidisha Chakrabarty

Saint Louis University - Richard A. Chaifetz School of Business ( email )

3674 Lindell Blvd
St. Louis, MO MO 63108-3397
United States
3149773607 (Phone)
3149771479 (Fax)

HOME PAGE: http://business.slu.edu/departments/finance/faculty-staff/bidisha-chakrabarty

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