61 Pages Posted: 9 Mar 2020
Date Written: March 2020
We model a simple market setting in which fragmentation of trade of the same asset across multiple exchanges improves allocative efficiency. Fragmentation reduces the inhibiting effect of price-impact avoidance on order submission. Although fragmentation reduces market depth on each exchange, it also isolates cross-exchange price impacts, leading to more aggressive overall order submission and better rebalancing of unwanted positions across traders. Fragmentation also has implications for the extent to which prices reveal traders’ private information. While a given exchange price is less informative in more fragmented markets, all exchange prices taken together are more informative.
Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.
Suggested Citation: Suggested Citation
Here is the Coronavirus
related research on SSRN
This is a National Bureau of Economic Research Paper. NBER charges a fee of $5.00 for this paper.
File name: nber.pdf
If you wish to purchase the right to make copies of this paper for distribution to others, please select the quantity.