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

54 Pages Posted: 7 May 2019 Last revised: 6 Jun 2022

See all articles by Thomas J. Boulton

Thomas J. Boulton

Miami University

Marcus V. Braga-Alves

Pace University - Lubin School of Business

Bidisha Chakrabarty

Saint Louis University - Richard A. Chaifetz School of Business

Date Written: March 25, 2019

Abstract

We examine how a firm’s reporting opacity affects its dark pool trading. Exploiting the exogenous variation in home-country reporting opacity in a sample of ADRs and using multiple metrics for reporting opacity, we find that greater opacity associates with increased dark pool trading. This relation holds after controlling for firms’ information environments, country specific governance issues, observable differences between ADRs and other securities that trade in dark pools (matched sample analysis), volume migration to dark pools during earnings announcements, informed trading in lit versus dark venues, ADR levels, IFRS reporting requirements, and the possible endogenous determination of home-country reporting opacity and dark pool volume. The positive relation is stronger for ADRs held by (quasi-indexing) institutions with low turnover and diversified holdings, and it is weaker for ADRs favored by (transient) institutions that trade frequently and (dedicated) institutions that hold concentrated portfolios. Bid-ask spreads are greater for higher opacity ADRs that trade in dark pools, indicating that reporting opacity is associated with the negative effect of dark pool trading on market quality.

Keywords: Reporting opacity; Dark pools; Disclosure; Earnings announcements; Informed trading

JEL Classification: G10, G11, G14, M41

Suggested Citation

Boulton, Thomas J. and Braga-Alves, Marcus V. and Chakrabarty, Bidisha, The Effect of Reporting 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 J. 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 - Lubin School of Business ( 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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