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Commonality in liquidity and multilateral trading facilities
Author(s) -
Jain Pankaj K.,
Mekhaimer Mohamed,
Mortal Sandra
Publication year - 2020
Publication title -
financial review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.621
H-Index - 47
eISSN - 1540-6288
pISSN - 0732-8516
DOI - 10.1111/fire.12225
Subject(s) - market liquidity , business , liquidity crisis , monetary economics , market maker , liquidity risk , dark liquidity , stock (firearms) , economics , financial system , stock market , high frequency trading , mechanical engineering , paleontology , horse , biology , engineering
We use the introduction of two multilateral trading facilities (MTFs) to examine the impact of market fragmentation on commonality in liquidity. We find that the introduction of MTFs following the Markets in Financial Instruments Directive increases the comovement of stocks’ liquidity with MTF liquidity, while the comovement with the home market liquidity generally decreases. We also find that the higher the MTF trading volume or the number of MTFs trading a stock, the stronger the effect. Further, we find that the commonality in liquidity remains unchanged for a matched control sample of stocks that do not trade on MTFs.