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A Glimpse into the Dark: Price Formation, Transaction Cost and Market Share of the Crossing Network. Transaction Cost and Market Share of the Crossing Network (June 9 (2010)
| Citations: | 15 - 0 self |
BibTeX
@MISC{Ye10aglimpse,
author = {Mao Ye and Haiqiang Chen and David Easley and Ming Huang and Craig Holden and Shawn Kong and Andrew Karolyi and Gideon Saar and Johan Sulaeman and Kumar Venkataraman and Liheng Xu and Xi Yang},
title = {A Glimpse into the Dark: Price Formation, Transaction Cost and Market Share of the Crossing Network. Transaction Cost and Market Share of the Crossing Network (June 9},
year = {2010}
}
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Abstract
This paper examines the interaction between a stock exchange and a crossing network (dark pool) in which buy and sell orders are passively matched using the price set by the stock exchange. The results show that the crossing network harms price discovery and the relative lack of revealed information most strongly a¤ects stocks with high uncertainty in their funda-mental values. However, the crossing network may reduce the severity of the adverse selection problem in the exchange and increase its liquidity. I nd that an increase in the uncertainty of the fundamental value of the asset increases the transaction costs in both markets, but stocks with higher fundamental value uncertainty are more likely to have higher market shares in the crossing network. In contrast to the results from previous studies, I nd that an increase in liquidity trading in the crossing network may decrease execution probability. The impact of di¤erent allocation rules in the crossing network on market outcomes is also examined. JEL Classi cation: G10 G20
Keyphrases
crossing network market share transaction cost price formation stock exchange di erent allocation rule g10 g20 ect stock previous study crossing network harm price discovery market outcome fundamental value uncertainty sell order adverse selection problem relative lack high uncertainty liquidity trading execution probability dark pool jel classi cation fundamental value funda-mental value
