@article{109c28ff8d814580b3d73842ed93687b,
title = "Information and optimal trading strategies with dark pools",
abstract = "This paper examines the effects of the competition between asset trading venues with different levels of transparency: an opaque dark pool alongside a transparent exchange organized as a limit order book (two-venue market). In a model with asymmetric information, we compare traders{\textquoteright} strategies and market performance in the two-venue market with that of a single-venue market (trading only in the exchange). We show that price informativeness is lower in the two-venue market when informed traders migrate to the dark pool and uninformed investors remain in the exchange. We also find that when orders migrate to the dark pool in the first period, market liquidity is lower (higher) in the two-venue market for high (low) fundamental volatility stocks as traders migrating to the dark pool would have demanded (supplied) liquidity in the exchange. Finally, the expected profits of informed traders are never lower in the two-venue market, but this may not always be true for uninformed traders.",
keywords = "Adverse selection, Dark liquidity, Limit order book, Market performance",
author = "A. Bayona and A. Dumitrescu and Carolina Manzano",
note = "Funding Information: We thank the Editor, Associate Editor and Referees for providing valuable suggestions to the manuscript. The paper has also benefited from comments of Vladimir Asriyan, Michael Brolley, Jordi Caball{\'e}, Julio Crego, Martin Haferkorn, Javier Gil-Bazo, Chinmay Jain, Tomy Lee, Laurence Lescourret, Robin Mess, Sophie Moinas, Roberto Pascual, Jos{\'e} Penalva, Eghbal Rahimikia, Andreea Vaduva, Xavier Vives, and seminar participants at the Finance Theory Group Summer School 2017, ERMAS 2017, CEPR European Summer Symposium in Financial Markets 2017, Finance Forum 2017, CEPR-Imperial-Plato Conference, Swiss Society for Financial Market Research, 42nd Symposium of Economic Analysis, 2nd Catalan Economic Society Conference, 2019 Conference of the Society for the Advancement of Economic Theory, EARIE 2019, 3rd SAFE Market Microstructure Conference, Financial Management Association 2019 Annual Meeting, 10th Annual Financial Market Liquidity Conference, 37th International Conference of the French Finance Association, MIFID II three years later - IE Business School/CNMV Conference, Consob-ESMA-Bocconi Seminar Series, Toulouse School of Economics, ESSEC Business School, Universitat de les Illes Baleares, and ESADE Business School. The authors acknowledge financial support from the Government of Spain (AEI/FEDER, UE PID2019-105982GBI00, PID2021-123748NB-I00, PR2015-00645), the Government of Catalonia (2017-SGR-770, 2017-SGR-640), Universitat Rovira i Virgili (2019PFR-URV-B2-53), Banc Sabadell, and the URL-La Caixa Foundation. Any errors are our own responsibility. Funding Information: We thank the Editor, Associate Editor and Referees for providing valuable suggestions to the manuscript. The paper has also benefited from comments of Vladimir Asriyan, Michael Brolley, Jordi Caball{\'e}, Julio Crego, Martin Haferkorn, Javier Gil-Bazo, Chinmay Jain, Tomy Lee, Laurence Lescourret, Robin Mess, Sophie Moinas, Roberto Pascual, Jos{\'e} Penalva, Eghbal Rahimikia, Andreea Vaduva, Xavier Vives, and seminar participants at the Finance Theory Group Summer School 2017, ERMAS 2017, CEPR European Summer Symposium in Financial Markets 2017, Finance Forum 2017, CEPR-Imperial-Plato Conference, Swiss Society for Financial Market Research, 42nd Symposium of Economic Analysis, 2nd Catalan Economic Society Conference, 2019 Conference of the Society for the Advancement of Economic Theory, EARIE 2019, 3rd SAFE Market Microstructure Conference, Financial Management Association 2019 Annual Meeting, 10th Annual Financial Market Liquidity Conference, 37th International Conference of the French Finance Association, MIFID II three years later - IE Business School/CNMV Conference, Consob-ESMA-Bocconi Seminar Series, Toulouse School of Economics, ESSEC Business School, Universitat de les Illes Baleares, and ESADE Business School. The authors acknowledge financial support from the Government of Spain ( AEI/FEDER , UE PID2019-105982GBI00 , PID2021-123748NB-I00 , PR2015-00645 ), the Government of Catalonia ( 2017-SGR-770 , 2017-SGR-640 ), Universitat Rovira i Virgili ( 2019PFR-URV-B2-53 ), Banc Sabadell , and the URL-La Caixa Foundation . Any errors are our own responsibility. Publisher Copyright: {\textcopyright} 2023 The Author(s)",
year = "2023",
month = sep,
doi = "10.1016/j.econmod.2023.106376",
language = "English",
volume = "126",
journal = "Economic Modelling",
issn = "0264-9993",
publisher = "Elsevier B.V.",
}