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Shades of darkness: A pecking order of trading venues

Albert Menkveld (), Bart Zhou Yueshen and Haoxiang Zhu

Journal of Financial Economics, 2017, vol. 124, issue 3, 503-534

Abstract: We characterize the dynamic fragmentation of U.S. equity markets using a unique data set that disaggregates dark transactions by venue types. The “pecking order” hypothesis of trading venues states that investors “sort” various venue types, putting low-cost-low-immediacy venues on top and high-cost-high-immediacy venues at the bottom. Hence, midpoint dark pools on top, non-midpoint dark pools in the middle, and lit markets at the bottom. As predicted, following VIX shocks, macroeconomic news, and firms’ earnings surprises, changes in venue market shares become progressively more positive (or less negative) down the pecking order. We further document heterogeneity across dark venue types and stock size groups.

Keywords: Dark pool; Pecking order; Fragmentation (search for similar items in EconPapers)
JEL-codes: D47 G12 G14 G18 (search for similar items in EconPapers)
Date: 2017
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Working Paper: Shades of Darkness: A Pecking Order of Trading Venues (2015) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:124:y:2017:i:3:p:503-534

DOI: 10.1016/j.jfineco.2017.03.004

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