Dark trading and price discovery

Carole Comerton-Forde and Talis Putnins

Journal of Financial Economics, 2015, vol. 118, issue 1, 70-92

Abstract: Regulators globally are concerned that dark trading harms price discovery. We show that dark trades are less informed than lit trades. High levels of dark trading increase adverse selection risk on the lit exchange by increasing the concentration of informed traders. Using both high- and low-frequency measures of informational efficiency we find that low levels of non-block dark trading are benign or even beneficial for informational efficiency, but high levels are harmful. In contrast, we find no evidence that block trades in the dark impede price discovery.

Keywords: Dark pool; Price discovery; Efficiency (search for similar items in EconPapers)
JEL-codes: G14 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (116)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:118:y:2015:i:1:p:70-92

DOI: 10.1016/j.jfineco.2015.06.013

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