The Impact of New Execution Venues on European Equity Markets’ Liquidity – The Case of Chi-X

Chlistalla, Michael; Lutat, Marco

doi:10.1007/978-3-642-03132-8_18

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Measure Of Market Fragmentation1

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Cited by 6 publications

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“…We proxy market fragmentation for each stock and for each trading day by using the reciprocal of the Herfindhal-Hirschman Index (HHI). This index is also used by Chlistalla and Lutat (2009) In Table I, the mean estimate for CDEF -,/ is about 2.3, and the median is 2.38. This…”

Section: Measure Of Market Fragmentationmentioning

confidence: 99%

The paradoxical effects of market fragmentation on adverse selection risk and market efficiency

Ibikunle¹,

Mare

Sun

2020

The European Journal of Finance

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Unlike the US's Regulation National Market System (RNMS), the EU's Markets in Financial Instruments Directive (MiFID) does not impose a formal exchange trading linkage or guarantee a best execution price. This raises concerns about consolidated market quality in increasingly fragmented European markets. We investigate the impact of visible trading fragmentation on the quality of the London equity market and find a non-linear relationship between fragmentation and adverse selection risk. At moderate levels of fragmentation, order flow competition reduces adverse selection risk and enhances market efficiency by reducing arbitrage opportunities. Contrarily, high levels of fragmentation heighten adverse selection issues.

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Section: Measure Of Market Fragmentationmentioning

confidence: 99%