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Market Fragmentation and Market Quality: The European Experience

Gresse, Carole (2014), Market Fragmentation and Market Quality: The European Experience, in Louhichi, Waël, Market Microstructure and Nonlinear Dynamics. Keeping Financial Crisis in Context, Springer : Berlin Heidelberg. 10.1007/978-3-319-05212-0_1

Type
Chapitre d'ouvrage
Date
2014
Book title
Market Microstructure and Nonlinear Dynamics. Keeping Financial Crisis in Context
Book author
Louhichi, Waël
Publisher
Springer
Published in
Berlin Heidelberg
ISBN
978-3-319-05211-3
Publication identifier
10.1007/978-3-319-05212-0_1
Metadata
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Author(s)
Gresse, Carole
Abstract (EN)
This book chapter provides an overview of market fragmentation in Europe since the first implementation of the Markets in Financial Instruments Directive (MiFID) on 1 November 2007. It makes a brief literature review on the consequences of lit and dark fragmentation for liquidity. It presents an empirical analysis of the effect of market fragmentation on price quality measured by price inefficiency coefficients (PICs) based on variance ratios for a sample of European large and medium capitalizations stocks. Contrary to the results by O’Hara and Ye (Journal of Financial Economics 100(3):459–474, 2011) for U.S. stocks, I do not find a clearly significant impact of market fragmentation on price quality. The only PICs to be affected are those based on 1-s to 5-s return variance ratios. According to 1-s to 5-s PICs: (1) the price quality of large UK equities improved with market fragmentation after MiFID; (2) the price quality of large Euronext equities improved with fragmentation in the primary market but deteriorated when measured across markets; and (3) the price quality of Euronext mid-caps was adversely affected. Notwithstanding these findings, price quality is not affected when measured at any other horizon.
Subjects / Keywords
Price quality; Variance ratio; MiFID; Liquidity; Market fragmentation
JEL
G14 - Information and Market Efficiency; Event Studies; Insider Trading
G15 - International Financial Markets
G18 - Government Policy and Regulation

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    Gresse, Carole (2014-09) Article accepté pour publication ou publié
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    The Impact of Crossing on Market Quality : an Empirical Study on the UK Market 
    Gresse, Carole (2001) Communication / Conférence
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    Gresse, Carole (2010) Document de travail / Working paper
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    Effects of the Competition between Multiple Trading Platforms on Market Liquidity : Evidence from the MiFID Experience 
    Gresse, Carole (2011) Communication / Conférence
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