Is market fragmentation harming market quality?

Maureen O'Hara and Mao Ye

Journal of Financial Economics, 2011, vol. 100, issue 3, 459-474

Abstract: We examine how fragmentation is affecting market quality in US equity markets. We use newly available trade reporting facilities (TRFs) data to measure fragmentation, and we use a variety of empirical approaches to compare execution quality and efficiency of stocks with more and less fragmented trading. We find that fragmentation affects all stocks; more fragmented stocks have lower transactions costs and faster execution speeds; and fragmentation is associated with higher short-term volatility but greater market efficiency, in that prices are closer to being a random walk. Our results that fragmentation does not appear to harm market quality are consistent with US markets being a single virtual market with multiple points of entry.

Keywords: Market; microstructure; Security; market; regulation; Market; efficiency (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (203)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:100:y:2011:i:3:p:459-474

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