Informational Linkages Between Dark and Lit Trading Venues
2014
We examine the linkages between dark and lit
venuesusing a proprietary data set. We find that
algorithmic tradesfor less liquid stocks are correlated with higher spreads and price impact, as well as contemporaneous trading on the lit
venues. Also, signed trades for these stocks predict future returns over the next 15–120 minutes. Trades for liquid stocks, trades by the dark
venuebrokerage
desk, and trades of large blocks transmit less information to lit
venues. The results suggest informed agents split orders using algorithms across dark and lit trading
venues, with lit orders providing some
price discovery.
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