How Dark Trading Harms Financial Markets

• 成果类型: Article
• 署名作者: Halim, Edward; Riyanto, Yohanes E.; Roy, Nilanjan; Wang, Yan
• 署名单位: Nanyang Technological University; City University of Hong Kong; Fudan University; City University of Hong Kong
• 刊物名称: ECONOMIC JOURNAL
• ISSN/ISSBN: 0013-0133
• DOI: 10.1093/ej/ueaf007
• 发表日期: 2025
• 页码: 1711-1733
• 关键词: Information percolation; liquidity; prices; TRANSPARENCY; search; hidden; lucas

摘要

We design an experiment to analyse the consequences of dark trading in a financial market. The channel through which dark trading affects market efficiency critically depends on how information regarding fundamentals is distributed among investors. When information is concentrated in the hands of a few investors, possibly due to sparse investor connectedness or low media coverage, dark trading primarily impacts market efficiency by deteriorating the quality of asset prices. When information is diffused, dark trading no longer harms price discovery, but the unobserved liquidity entails welfare loss. Dark trading does not widen the earnings gap between informed and uninformed traders.