Brown Bag Seminar with Carole Comerton-Forde, University of Melbourne

The Department of Finance and FRIC Center for Financial Frictions are happy to announce the upcoming Brown Bag Seminar with Carole Comerton-Forde, University of Melbourne.

Carole Comerton-Forde will present:

Dark Trading and Price Discovery

Authors: 

Carole Comerton-Forde, University of Melbourne
Tālis J. Putniņš, University of Technology Sydney and Stockholm School of Economics in Riga

Abstract:      

Regulators around the world are concerned that growth in dark trading may harm price discovery. We show that block and non-block dark trades affect price discovery differently. We find no evidence that block trades in the dark impede price discovery. In contrast, high levels of non-block dark trading harms price discovery and reduces the informational efficiency of prices, while low levels of non-block dark trading can be beneficial. One reason non-block dark trading can be harmful is that the lack of pre-trade information reduces the market’s ability to infer and incorporate private information. Uninformed trades are more likely to execute in the dark, which increases adverse selection risk and bid-ask spreads in the transparent exchange.