nep-mst New Economics Papers
on Market Microstructure
Issue of 2015‒09‒18
three papers chosen by
Thanos Verousis

  1. Into the light: dark pool trading and intraday market quality on the primary exchange By Brugler, James
  2. The Impact of Large Orders in Electronic Markets By L. Bosetti; P. Gottardo; M. Murgia; A. Pinna
  3. Estimating heterogeneous agents behavior in a two-market financial system By Chen, Zhenxi; Huang, Weihong; Zheng, Huanhuan

  1. By: Brugler, James (Bank of England)
    Abstract: This paper uses regulator-provided transaction data to investigate how trading in dark pools affects intraday market quality on the limit order book of the primary exchange for members of the FTSE 100 index. Using trading patterns from execution algorithms as instrumental variables, I show that dark trading leads to improved liquidity on the primary exchange, both in absolute terms and relative to trading on the limit order book. Although these relationships differ across stocks of different sizes, dark trading does not lead to worse market quality at the intraday level for either small or large stocks during the sample period.
    Keywords: Dark pools; dark trading; market quality.
    JEL: G10 G12 G14 G18
    Date: 2015–09–11
  2. By: L. Bosetti; P. Gottardo; M. Murgia; A. Pinna
    Abstract: We examine both displayed and non-displayed orders sent by all investors to the electronic central limit order book of the Italian stock exchange Borsa Italiana (BI) in 2005, after stocks recovered from the dot-com burst and before the run-up to the financial crisis. Extant literature relies on trades as basic level of observation for the lack of data. Our unique dataset enables us to re- construct the evolution of the order book and trades over time. Trading costs are lower than in any other exchange analysed in the past. Rules on over-the-counter trading allow us to measure the economic impact of market fragmentation. Contrarily to the existing literature, we observe price impacts are lower in the electronic downstairs market than in the upstairs market. We explain our results in terms of exchange trading architecture.
    Keywords: Large Orders, Electronic exchange, Upstairs market, Block trading, Price Impact, Liquidity, Dark Pool
    JEL: G14 G15 G23
    Date: 2015
  3. By: Chen, Zhenxi; Huang, Weihong; Zheng, Huanhuan
    Abstract: In this paper, we propose a two-market empirical model with heterogeneous agents based on Chiarella et al. (2012). Using monthly data of French and US stock markets, the regression shows that individual markets have feature of two-regime switching process. By including inter-market traders whose trading decision is based on fundamental value of foreign market, the two-market model has a better capability in explaining both markets with domestic fundamental traders turning to be significant. The existence of inter-market traders implies that the two markets impact each other through their fundamental and hence share some common set of factors, which provides foundation of market interactions, such as market co-movement.
    Keywords: cross-correlation,co-movement,heterogeneous agents,financial multi-market interactions
    JEL: D84 G12 G15
    Date: 2015

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