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