Is market fragmentation harming market quality? |
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Authors: | Maureen O'Hara Mao Ye |
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Institution: | 1. JGSM-Sage Hall, Cornell University, Ithaca, NY 14882, USA;2. University of Illinois, USA |
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Abstract: | We examine how fragmentation is affecting market quality in US equity markets. We use newly available trade reporting facilities (TRFs) data to measure fragmentation, and we use a variety of empirical approaches to compare execution quality and efficiency of stocks with more and less fragmented trading. We find that fragmentation affects all stocks; more fragmented stocks have lower transactions costs and faster execution speeds; and fragmentation is associated with higher short-term volatility but greater market efficiency, in that prices are closer to being a random walk. Our results that fragmentation does not appear to harm market quality are consistent with US markets being a single virtual market with multiple points of entry. |
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Keywords: | G12 G14 G18 |
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