Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/97366
Authors: 
Körber, Lena
Linton, Oliver
Vogt, Michael
Year of Publication: 
2013
Series/Report no.: 
cemmap working paper, Centre for Microdata Methods and Practice CWP42/13
Abstract: 
We investigate the effects of fragmentation in equity trading on the quality of the trading outcomes, specifically volatility, liquidity and volume. We use panel regression methods on a weekly dataset following the FTSE350 stocks over the period 2008-2011, which provides a lot of cross-sectional and time series variation in fragmentation. This period coincided with a great deal of turbulence in the UK equity markets which had multiple causes that need to be controlled for. To achieve this, we use a version of the common correlated effects estimator (Pesaran, 2006). One finding is that volatility is lower in a fragmented market when compared to a monopoly. Trading volume at the London Stock Exchange is lower too, but global trading volume is higher if order flow is fragmented across multiple venues. When separating overall fragmentation into visible fragmentation and dark reading, we find that the decline in LSE volume can be attributed to visible fragmentation, while the increase in global volume is due to dark trading.
Subjects: 
Heterogenous panel data
quantile regression
MiFID
JEL: 
C23
G28
L10
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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