The relevance of dark trading for information acquisition in the German stock market

Deelaka Ekanayake, Lee Smales and Yuanji Wen

Finance Research Letters, 2024, vol. 69, issue PB

Abstract: The implementation of the European double volume cap (DVC) mechanism acts as an exogenous shock to help understand how restrictions on dark trading affect the price discovery process for German stocks. Using the price jump ratio as a measure of information acquisition prior to earnings announcements, we show that dark pool trading aids information acquisition. This relationship is stronger for negative earnings news, for stocks that are hard to value, and when there is uncertainty around earnings. The introduction of the DVC mechanism weakens the relationship between dark trading and pre-announcement information acquisition.

Keywords: Dark pools; Information acquisition; Informed trading, Price informativeness; Earnings announcement (search for similar items in EconPapers)
JEL-codes: G10 G14 G18 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:69:y:2024:i:pb:s1544612324012741

DOI: 10.1016/j.frl.2024.106245

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