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Stock markets fragmentation, volatility and final investors

Author

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  • Cécile Bastidon

    (LEAD - Laboratoire d'Économie Appliquée au Développement - UTLN - Université de Toulon, CAC-IXXI, Complex Systems Institute)

Abstract

The 2000s in equity markets are marked by two major regulatory shocks: RegNMS in the United States, and MiFID in the European Union. Simultaneously, there is a massive increase in the proportion of high-frequency trading, and market orders volume. However, trading volumes do not significantly increase. We propose a theoretical model describing the effects of stock markets fragmentation on two types of investors optimization problems: “intermediary” high-frequency and “final” investors. Volatility has a permanent and a transitory component, whose weights depend on market fragmentation via the share of non-marketable orders of intermediary investors. The trading volume of final investors depends on market fragmentation both directly via transaction costs, and indirectly via total volatility. Finally a shock in fragmentation may lead to a decrease in trading volume, enhanced in the case of an equity markets crisis by a rise in the components of volatility.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Cécile Bastidon, 2017. "Stock markets fragmentation, volatility and final investors," Post-Print hal-03318507, HAL.
    • Handle: RePEc:hal:journl:hal-03318507
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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