Dark trading volume and market quality: A natural experiment

Ryan Farley, Eric K. Kelley and Andy Puckett

Journal of Corporate Finance, 2025, vol. 91, issue C

Abstract: We exploit an exogenous shock to dark trading volume to identify the effect of dark trading on market quality. Following a 34% reduction in trading on dark venues, we find no evidence that the cost of trade (e.g., effective spreads, realized spreads, price impact, and quoted spreads) changes in a statistically or economically meaningful manner. While our findings stand in contrast to those of several prior studies, supplemental tests confirm that contradictory inferences cannot be attributed to either low power or different stock samples or time periods. Instead, we argue that identification is a key driver in conflicting results. Our research highlights the benefit of structured experimentation from the Securities and Exchange Commission (SEC) for understanding causal effects in capital markets.

Keywords: Dark trading; Market fragmentation; Market quality; Microstructure (search for similar items in EconPapers)
JEL-codes: G1 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0929119925000100
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:91:y:2025:i:c:s0929119925000100

DOI: 10.1016/j.jcorpfin.2025.102742

Access Statistics for this article

Journal of Corporate Finance is currently edited by A. Poulsen and J. Netter

More articles in Journal of Corporate Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().