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The relevance of dark trading for information acquisition in the German stock market

Author

Listed:
  • Ekanayake, Deelaka
  • Smales, Lee A.
  • Wen, Yuanji

Abstract

The implementation of the European double volume cap (DVC) mechanism acts as an exogenous shock to help understand how restrictions on dark trading affect the price discovery process for German stocks. Using the price jump ratio as a measure of information acquisition prior to earnings announcements, we show that dark pool trading aids information acquisition. This relationship is stronger for negative earnings news, for stocks that are hard to value, and when there is uncertainty around earnings. The introduction of the DVC mechanism weakens the relationship between dark trading and pre-announcement information acquisition.

Suggested Citation

  • Ekanayake, Deelaka & Smales, Lee A. & Wen, Yuanji, 2024. "The relevance of dark trading for information acquisition in the German stock market," Finance Research Letters, Elsevier, vol. 69(PB).
    • Handle: RePEc:eee:finlet:v:69:y:2024:i:pb:s1544612324012741
    DOI: 10.1016/j.frl.2024.106245
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    References listed on IDEAS

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    More about this item

    Keywords

    Dark pools; Information acquisition; Informed trading; Price informativeness; Earnings announcement;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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