Determinants of OTC Trading Volume

Projekt Start:05/2013
Status:Beendet
Forscher:Peter Gomber, Erik Theissen, Moritz Christian Weber
Kategorie: Financial Markets, Systemic Risk Lab, Transparency Lab
Finanziert von:LOEWE

A considerable fraction of equity trading is conducted in dark markets, i.e. markets with no or limited pre-trade transparency. Such markets include over-the-counter (OTC) markets, dark pools, and systematic internalizers. These markets are subject to less stringent regulation as compared to traditional exchanges and other lit venues. An understanding of traders' order routing choices to different dark venues is a precondition to the analysis of their impact on various aspects of market quality such as liquidity and price efficiency. However, very little research exists on this topic. This project attempts to fill this gap in the literature.

The paper titled “Distinct Dark Markets and the Determinants of their Trading Volume” makes three main contributions to the literature. First, existing theoretical models examining these choices only do so in a simplified setting involving one lit and one dark market. We test the extent to which the predictions of such two-market models hold in a multi-market setting. Second, most studies fail to incorporate the co-determination between traders’ choice of venue and order size. By jointly examining these two choices, we provide additional insights about investors’ trading behavior. Finally, we show that two dimensions along which dark and lit venues differ – immediacy and anonymity – interact with traders’ motives (adverse selection) in explaining order-routing decisions.

We also received a grant from the Europlace Institute of Finance, Paris, which allowed us to extend the scope of the project. This includes the extension of the sample to include additional stocks and an additional paper examining the market quality implications of competition/fragmentation in equities markets.

 

Zugehörige publizierte Papers

Forscher/innenTitelJahrProgrammbereichKeywords
Peter Gomber, Satchit Sagade, Erik Theissen, Moritz Christian Weber, Christian WestheideThe State of Play in European Over-the-Counter Equities Trading
Journal of Trading
2015 Financial Markets, Systemic Risk Lab, Transparency Lab
Peter Gomber, Satchit Sagade, Erik Theissen, Moritz Christian Weber, Christian WestheideCompetition Between Equity Markets: A Review of the Consolidation Versus Fragmentation Debate
Journal of Economic Surveys
2017 Financial Markets, Systemic Risk Lab, Transparency Lab Competition, Fragmentation, Market Structure, Liquidity, Price Discovery

Zugehörige Working Papers

Nr.Forscher/innenTitelJahrProgrammbereichKeywords
143Peter Gomber, Satchit Sagade, Erik Theissen, Moritz Christian Weber, Christian WestheideSpoilt for Choice: Order Routing Decisions in Fragmented Equity Markets2016 Financial Markets, Systemic Risk Lab, Transparency Lab Dark Trading, Fragmentation, Anonymity, Immediacy
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