COVID-19: Venue Selection Effects and Implications for Market Quality
52 Pages Posted: 29 Apr 2020 Last revised: 21 Sep 2020
Date Written: April 27, 2020
We investigate the effects of the COVID-19-induced shock in financial markets on aggregate venue selection/market share and market quality. We find that the shock is linked with an economically significant loss of market share by dark pools to lit exchanges. In line with theory, the loss appears driven by an increase in lit market volatility and a search for immediacy by traders active in stocks with dark trading access. The market quality implications of the reduction in dark trading are mixed: while it tempers COVID-19-linked liquidity decline in the lit market, it exacerbates the loss of informational efficiency.
Keywords: COVID-19, dark pools, venue selection, liquidity, informational efficiency, market quality
JEL Classification: G12, G14, G15, G18
Suggested Citation: Suggested Citation