Bart Zhou Yueshen
Assistant Professor of Finance
Dark pool; Pecking order; Fragmentation; JEL Classification; G12; G14; G18; D47;
JOURNAL ARTICLE | Journal of Financial Economics | 124 | June 2017
Shades of Darkness: A Pecking Order of Trading Venues
The authors characterize the dynamic fragmentation of U.S. equity markets using a unique data set that disaggregates dark transactions by venue types. The “pecking order” hypothesis of trading venues states that investors “sort” various venue types, putting low-cost-low-immediacy venues on top and high-cost-high-immediacy venues at the bottom.Hence, midpoint dark pools on top, non-midpoint dark pools in the middle, and lit markets at the bottom. As predicted, following VIX shocks, macroeconomic news, and firms’ earnings surprises, changes in venue market shares become progressively more positive (or less negative) down the pecking order.The authors further document heterogeneity across dark venue types and stock size groups.