Economics at your fingertips  

The paradoxical effects of market fragmentation on adverse selection risk and market efficiency

Gbenga Ibikunle, Davide Salvatore Mare () and Yuxin Sun

The European Journal of Finance, 2020, vol. 26, issue 14, 1439-1461

Abstract: Unlike the US’s Regulation National Market System (RNMS), the EU’s Markets in Financial Instruments Directive (MiFID) does not impose a formal exchange trading linkage or guarantee a best execution price. This raises concerns about consolidated market quality in increasingly fragmented European markets. We investigate the impact of visible trading fragmentation on the quality of the London equity market and find a non-linear relationship between fragmentation and adverse selection risk. At moderate levels of fragmentation, order flow competition reduces adverse selection risk and enhances market efficiency by reducing arbitrage opportunities. Contrarily, high levels of fragmentation heighten adverse selection issues.

Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link) (text/html)
Access to full text is restricted to subscribers.

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:

Ordering information: This journal article can be ordered from

DOI: 10.1080/1351847X.2020.1745861

Access Statistics for this article

The European Journal of Finance is currently edited by Chris Adcock

More articles in The European Journal of Finance from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().

Page updated 2021-05-27
Handle: RePEc:taf:eurjfi:v:26:y:2020:i:14:p:1439-1461