Do Dark Pools Harm Price Discovery?
Name
Zhu_Do dark.pdf
Size
470.74 KB
Format
Adobe PDF
Checksum (MD5)
2a508a38e388ac53c75c35ded69b0b1e
Author(s)
Zhu, Haoxiang
Date Issued
December 2013
Journal
Review of Financial Studies
Publisher
Oxford University Press
Citation
Zhu, H. “Do Dark Pools Harm Price Discovery?” Review of Financial Studies 27, no. 3 (March 1, 2014): 747–789.
Version
Author's final manuscript
Abstract
Dark pools are equity trading systems that do not publicly display orders. Dark pools offer potential price improvements but do not guarantee execution. Informed traders tend to trade in the same direction, crowd on the heavy side of the market, and face a higher execution risk in the dark pool, relative to uninformed traders. Consequently, exchanges are more attractive to informed traders, and dark pools are more attractive to uninformed traders. Under certain conditions, adding a dark pool alongside an exchange concentrates price-relevant information into the exchange and improves price discovery. Improved price discovery coincides with reduced exchange liquidity.
MIT Department
Sloan School of Management
Terms of Use
Creative Commons Attribution-Noncommercial-Share Alike
Persistent DSpace Link
DOI of Published Version
https://doi.org/10.1093/rfs/hht078
