Short- and Long-Term Effects of Multimarket Trading

35 Pages Posted: 22 Jan 2007

See all articles by Vanthuan Nguyen

Vanthuan Nguyen

Morgan State University

Bonnie F. Van Ness

University of Mississippi - Department of Finance

Robert A. Van Ness

University of Mississippi - Department of Finance

Date Written: January 5, 2007

Abstract

We analyze both short- and long-term effects of multimarket trading by examining the entries of multiple markets in three actively traded Exchange Traded Funds (DIA, QQQ, and SPY). Using a time series analysis, we follow the market evolution of these ETFs with regard to order flow fragmentation, trading activity, trading costs, volatility, price efficiency, and price impact. We find that large scale entries, mainly the NYSE, improve overall market quality while small scale entries have ambiguous effects. We find evidence that the competition effect dominates the fragmentation effect over a long-term horizon. Market fragmentation is associated with declines in trading costs. We also present evidence against the view that multimarket trading harms price efficiency and increases price volatility. Additionally, we find that the order handling rules help mitigate the fragmentation effect and facilitate the competition effect.

Keywords: Exchange Traded Funds, Multimarket Trading, Competition, Fragmentation, Consolidation

JEL Classification: G14, G18

Suggested Citation

Nguyen, Vanthuan and Van Ness, Bonnie F. and Van Ness, Robert A., Short- and Long-Term Effects of Multimarket Trading (January 5, 2007). Available at SSRN: https://ssrn.com/abstract=958176 or http://dx.doi.org/10.2139/ssrn.958176

Vanthuan Nguyen (Contact Author)

Morgan State University ( email )

School of Business and Management
1700 East Cold Spring Lane
Baltimore, MD 21251
United States

Bonnie F. Van Ness

University of Mississippi - Department of Finance ( email )

Oxford, MS 38677
United States
662-915-6749 (Phone)
662-915-7968 (Fax)

Robert A. Van Ness

University of Mississippi - Department of Finance ( email )

Oxford, MS 38677
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
154
Abstract Views
2,528
Rank
359,909
PlumX Metrics