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Is market fragmentation harming market quality?

Author Info

Listed author(s):
  • O'Hara, Maureen
  • Ye, Mao
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    Abstract

    We examine how fragmentation is affecting market quality in US equity markets. We use newly available trade reporting facilities (TRFs) data to measure fragmentation, and we use a variety of empirical approaches to compare execution quality and efficiency of stocks with more and less fragmented trading. We find that fragmentation affects all stocks; more fragmented stocks have lower transactions costs and faster execution speeds; and fragmentation is associated with higher short-term volatility but greater market efficiency, in that prices are closer to being a random walk. Our results that fragmentation does not appear to harm market quality are consistent with US markets being a single virtual market with multiple points of entry.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0304-405X(11)00039-0
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    Article provided by Elsevier in its journal Journal of Financial Economics.

    Volume (Year): 100 (2011)
    Issue (Month): 3 (June)
    Pages: 459-474

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    Handle: RePEc:eee:jfinec:v:100:y:2011:i:3:p:459-474
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505576

    Keywords: Market microstructure Security market regulation Market efficiency;

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