Article

Short- and Long-Term Effects of Multimarket Trading

Financial Review 08/2007; 42(3):349-372. DOI: 10.1111/j.1540-6288.2007.00175.x
Source: RePEc

ABSTRACT We analyze short- and long-term effects of multimarket trading by examining the entries of multiple markets into transacting three ETFs, DIA, QQQ, and SPY. We find that large-scale entries improve overall market quality, while small-scale entries have ambiguous effects. Our results show that the competition effect dominates the fragmentation effect over a long horizon and that market fragmentation leads to a decline in trading costs. Further, we find that the order handling rules help mitigate the fragmentation effect and facilitate the competition effect. We do not find that multimarket trading harms price efficiency or increases price volatility. Copyright 2007, The Eastern Finance Association.

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Available from: Van Thuan Nguyen, Jul 29, 2015
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    • "They find that competition generates a significant stimulus for the liquidity of the most actively traded French stocks, while this does not hold true for stocks with lower trading turnover. Nguyen, et al (2007) analyze both short-and long-term effects of multi-market trading by examining the entry of multiple markets in three actively traded Exchange Traded Funds (DIA, QQQ, and SPY) 5 . They find that market fragmentation is associated with declines in trading costs, even if this effect is clear only for large market entries and over the long-run. "
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