Zusammenfassung
Technological advances and regulatory initiatives have led to the emergence of a competitive, but fragmented, equity trading landscape in several markets around the world. While these changes have coincided with benefits like reduced transaction costs, advancements in trading technology, and access to a diverse array of execution venues, regulators and market participants have also raised concerns about the welfare implications of innovations like dark pools as well as the resulting increase in execution complexity. Exchanges are often viewed as natural monopolies due to the presence of network externalities and economies of scale. However, heterogeneity in traders' preferences means that no single venue can serve the interests of all investors. Fragmentation of the marketplace can be seen as a direct outcome of this heterogeneity. In this article we review the theoretical and empirical literature examining the economic arguments and motivations underlying market fragmentation, the resulting implications for liquidity and price efficiency, and the role for public policy. Beyond the concerns for equity markets, the lessons from this literature are relevant for other asset classes experiencing an increase in competition between trading venues.
Schlagworte
competition, fragmentation, market structure, liquidity, price discovery
Thema
Systematic Risk Corporate Governance Trading and Pricing
Beziehungen
Forschungsdaten
JEL-Klassifizierung
Forschungsbereich
Thema
G10 Spillover Effects among Financial Institutions: A State-Dependent Sensitivity Value-at-Risk Approach Competition Between Equity Markets: A Review of the Consolidation Versus Fragmentation Debate Housing Habits and Their Implications for Life-Cycle Consumption and Investment Spoilt for Choice: Order Routing Decisions in Fragmented Equity Markets The Impact of Network Connectivity on Factor Exposures, Asset Pricing and Portfolio Diversification Networks in Risk Spillovers: A Multivariate GARCH Perspective Idiosyncratic Volatility Puzzle: The Role of Assets' Interconnections Liquidity Provider Incentives in Fragmented Securities Markets A Tale of One Exchange and Two Order Books: Effects of Fragmentation in the Absence of Competition High-Frequency Trading and Price Informativeness High-Frequency Trading and Price Informativeness Quasi-Dark Trading: The Effects of Banning Dark Pools in a World of Many Alternatives High-Frequency Trading During Flash Crashes: Walk of Fame or Hall of Shame? Machine Learning Sentiment Analysis, Covid-19 News and Stock Market Reactions Resiliency: Cross-Venue Dynamics with Hawkes Processes The FOMC Risk Shift Volatility, Valuation Ratios, and Bubbles: An Empirical Measure of Market Sentiment A Modern Take on Market Efficiency: The Impact of Trump’s Tweets on Financial Markets Call of duty: Designated market maker participation in call auctions Market impact of government communication: The case of presidential tweets Financial Markets Option-Implied Information and Predictability of Extreme Returns Growth Options and Firm Valuation The Dynamics of Crises and the Equity Premium When Do Jumps Matter for Portfolio Optimization? Stochastic Differential Utility as the Continuous-Time Limit of Recursive Utility Partial Information about Contagion Risk, Self-Exciting Processes and Portfolio Optimization Asset Pricing Under Uncertainty About Shock Propagation Asset Prices in General Equilibrium with Recursive Utility and Illiquidity Induced by Transactions Costs Mutual Excitation in Eurozone Sovereign CDS Optimal Consumption and Investment with Epstein-Zin Recursive Utility Anchoring in Experimental Asset Markets Measuring Ambiguity Aversion: A Systematic Experimental Approach Austerity, Fiscal Uncertainty, and Economic Growth: Insights from Fiscally Weak EU Countries Peer Effects and Risk Sharing in Experimental Asset Markets Equilibrium Asset Pricing in Directed Networks International Endogenous Growth, Macro Anomalies, and Asset Prices Sovereign Credit Risk, Liquidity, and ECB Intervention: Deus Ex Machina? 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Euro Membership and Fiscal Reaction Functions Interbank Networks and Backdoor Bailouts: Benefiting from other Banks' Government Guarantees Revisiting the Narrative Approach of Estimating Tax Multipliers The Pitfalls of Central Clearing in the Presence of Systematic Risk Life Insurance and Demographic Change: An Empirical Analysis of Surrender Decisions Based on Panel Data Too Interconnected to Fail: A Survey of the Interbank Networks Literature Twin Picks: Disentangling the Determinants of Risk-Taking in Household Portfolios On the Impact of Leveraged Buyouts on Bank Systemic Risk Regulatory Influence on Market Conditions in the Banking Union Professional Networks and their Coevolution with Executive Careers: Evidence from Europe and North America An Extensible Model for Historical Financial Data with an Application to German Company and Stock Market Data Trust in Government and Fiscal Adjustments Input-Output-Based Measures of Systemic Importance United in Diversity? 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Accounting for Financial Stability: Lessons from the Financial Crisis and Future Challenges The Financing Dynamics of Newly Founded Firms Resolution Planning and Structural Bank Reform within the Banking Union Cross-Border Resolution of Global Banks Who Are the Bitcoin Investors? Evidence from Indirect Cryptocurrency Investments Shareholder Wealth vs. Stakeholder interests? Evidence from Code Compliance under the German Corporate Governance Code Incentive-Based Capital Requirements Hidden Gems and Borrowers with Dirty Little Secrets: Investment in Soft Information, Borrower Self-selection and Competition Optimal Asset Allocation for Interconnected Life Insurers in the Low Interest Rate Environment Under Solvency Regulation Asymmetric Social Norms Bank Response To Higher Capital Requirements: Evidence From A Quasi-Natural Experiment The Effects of Contingent Convertible (CoCo) Bonds on Insurers’ Capital Requirements under Solvency II The Influence of Leveraged Buyouts on Target Firms’ Competitors Financial Constraints and Corporate EnvironmentalResponsibility How Do Banks React to Catastrophic Events? Evidence from Hurricane Katrina Banking Union and the Governance of Credit Institutions - A Legal Perspective Macroprudential Policy in the Lab A Decentralization Theorem of Taxation Financing Costs and the Efficiency of Public-Private Partnerships Optimal Policy and Taylor Rule Cross-Checking Under Parameter Uncertainty Social Centralization, Bank Integration and the Transmission of Lending Shocks The Single Supervisory Mechanism – Panacea or Quack Banking Regulation? Insight Private Equity Motivated Beliefs and the Elderly's Compliance with COVID-19 Measures Taking the Lead: When Non-Banks Arrange Syndicated Loans Supranational Rules, National Discretion: Increasing Versus Inflating Regulatory Bank Capital? 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