Publication Type

Journal Article

Version

acceptedVersion

Publication Date

6-2017

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. Published by Elsevier B.V.

Keywords

Dark pool, Pecking order, Fragmentation

Discipline

Finance and Financial Management | Portfolio and Security Analysis

Research Areas

Finance

Publication

Journal of Financial Economics

Volume

124

Issue

3

First Page

503

Last Page

534

ISSN

0304-405X

Identifier

10.1016/j.jfineco.2017.03.004

Publisher

Elsevier

Copyright Owner and License

Authors

Additional URL

https://doi.org/10.1016/j.jfineco.2017.03.004

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