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The Impact of Dark and Visible Fragmentation on Market Quality (Replaces CentER Discussion Paper 2011-051)

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  • Degryse, H.A.

    (Tilburg University, Center For Economic Research)

  • de Jong, F.C.J.M.

    (Tilburg University, Center For Economic Research)

  • van Kervel, V.L.

    (Tilburg University, Center For Economic Research)

Abstract

Two important characteristics of current European equity markets are rooted in changes in financial regulation (the Markets in Financial Instruments Directive). The regulation (i) allows new trading venues to emerge, generating a fragmented market place and (ii) allows for a substantial fraction of trading to take place in the dark, outside publicly displayed order books. This paper evaluates the impact on liquidity of fragmentation in visible order books and dark trading for a sample of 52 Dutch stocks. We consider global liquidity by consolidating the entire limit order books of all visible European trading venues, and local liquidity by considering the traditional market only. We find that fragmentation in visible order books improves global liquidity, but dark trading has a detrimental effect. In addition, local liquidity is lowered by fragmentation in visible order books.

Suggested Citation

  • Degryse, H.A. & de Jong, F.C.J.M. & van Kervel, V.L., 2011. "The Impact of Dark and Visible Fragmentation on Market Quality (Replaces CentER Discussion Paper 2011-051)," Discussion Paper 2011-069, Tilburg University, Center for Economic Research.
  • Handle: RePEc:tiu:tiucen:f9895511-3b4b-4db5-bf34-149eb315dc18
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    References listed on IDEAS

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    28. repec:dau:papers:123456789/2586 is not listed on IDEAS
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    Citations

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    Cited by:

    1. Buti, Sabrina & Consonni, Francesco & Rindi, Barbara & Werner, Ingrid M., 2013. "Sub-Penny and Queue-Jumping," Working Paper Series 2013-18, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    2. Domenica Tropeano, 2016. "Hedging, arbitrage and the financialization of commodities markets," Working Papers 82-2016, Macerata University, Department of Finance and Economic Sciences, revised Sep 2016.
    3. Haoxiang Zhu, 2014. "Do Dark Pools Harm Price Discovery?," Review of Financial Studies, Society for Financial Studies, vol. 27(3), pages 747-789.
    4. repec:dau:papers:123456789/8775 is not listed on IDEAS

    More about this item

    Keywords

    Market microstructure; Market fragmentation; Liquidity; MiFID;

    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
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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