The Effect of Fragmentation in Trading on Market Quality in the UK Equity Market

Lena Körber, Oliver Linton and Michael Vogt
Authors registered in the RePEc Author Service: Lena Boneva

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: We investigate the effects of fragmentation in equity markets on the quality of trading outcomes in a panel of FTSE stocks over the period 2008-2011. This period coincided with a great deal of turbulence in the UK equity markets which had multiple causes that need to be controlled for. To achieve this, we use the common correlated effects estimator for large heterogeneous panels. We extend this estimator to quantile regression to analyze the whole conditional distribution of market quality. We find that both fragmentation in visible order books and dark trading that is offered outside the visible order book lower volatility. But dark trading increases the variability of volatility, while visible fragmentation has the opposite effect in particular at the upper quantiles of the conditional distribution. The transition from a monopolistic to a fragmented market is non-monotone.

Keywords: Heterogeneous panel data; quantile regression; MiFID; dark pools; high frequency trading (search for similar items in EconPapers)
JEL-codes: C23 G28 L10 (search for similar items in EconPapers)
Date: 2014-02-24
Note: obl20
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: The Effect of Fragmentation in Trading on Market Quality in the UK Equity Market (2016)
Working Paper: The effect of fragmentation in trading on market quality in the UK equity market (2013)
Working Paper: The effect of fragmentation in trading on market quality in the UK equity market (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:cam:camdae:1454

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