COVID-19: Venue Selection Effects and Implications for Market Quality

48 Pages Posted: 29 Apr 2020 Last revised: 21 Oct 2021

See all articles by Gbenga Ibikunle

Gbenga Ibikunle

University of Edinburgh; European Capital Markets Cooperative Research Centre

Khaladdin Rzayev

University of Edinburgh; Koc University

Date Written: April 27, 2020

Abstract

We investigate the effects of the COVID-19-induced shock in financial markets on aggregate venue selection/market share and market quality. We find that the shock is linked with an economically significant loss of market share by dark pools to lit exchanges. In line with theory, the loss appears driven by an increase in lit market volatility and a search for immediacy by traders active in stocks with dark trading access. The market quality implications of the reduction in dark trading are mixed: while it tempers COVID-19-linked liquidity decline in the lit market, it exacerbates the loss of informational efficiency.

Keywords: COVID-19, dark pools, venue selection, liquidity, informational efficiency, market quality

JEL Classification: G12, G14, G15, G18

Suggested Citation

Ibikunle, Gbenga and Rzayev, Khaladdin, COVID-19: Venue Selection Effects and Implications for Market Quality (April 27, 2020). Available at SSRN: https://ssrn.com/abstract=3586410 or http://dx.doi.org/10.2139/ssrn.3586410

Gbenga Ibikunle

University of Edinburgh ( email )

Old College
South Bridge
Edinburgh, Scotland EH8 9JY
United Kingdom

European Capital Markets Cooperative Research Centre ( email )

Viale Pidaro 42
Pescara, 65121
Italy

Khaladdin Rzayev (Contact Author)

University of Edinburgh ( email )

Old College
South Bridge
Edinburgh, Scotland EH8 9JY
United Kingdom

Koc University ( email )

Rumelifeneri Yolu
34450 Sar?yer
Istanbul, 34450
Turkey

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