 Information and optimal trading strategies with dark poolsAnna Bayona, Ariadna Dumitrescu and Carolina Manzano () Economic Modelling, 2023, vol. 126, issue C Abstract: This paper examines the effects of the competition between asset trading venues with different levels of transparency: an opaque dark pool alongside a transparent exchange organized as a limit order book (two-venue market). In a model with asymmetric information, we compare traders’ strategies and market performance in the two-venue market with that of a single-venue market (trading only in the exchange). We show that price informativeness is lower in the two-venue market when informed traders migrate to the dark pool and uninformed investors remain in the exchange. We also find that when orders migrate to the dark pool in the first period, market liquidity is lower (higher) in the two-venue market for high (low) fundamental volatility stocks as traders migrating to the dark pool would have demanded (supplied) liquidity in the exchange. Finally, the expected profits of informed traders are never lower in the two-venue market, but this may not always be true for uninformed traders. Keywords: Dark liquidity; Limit order book; Adverse selection; Market performance (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:126:y:2023:i:c:s0264999323001888 DOI: 10.1016/j.econmod.2023.106376 Access Statistics for this article Economic Modelling is currently edited by S. Hall and P. Pauly More articles in Economic Modelling from Elsevier |
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