Market Fragmentation, Liquidity, and Efficiency

• This paper uses a unique quasi-natural experiment to study the market quality effects of market fragmentation across stock exchanges. In July 2019, following the breakdown of EU-Swiss equivalence rules, the Swiss stock markets transitioned from being fragmented to being centralized. As the event was non-gradual (fragmentation went from 31% to zero overnight), widely anticipated, and unrelated to technological developments, strong identification was possible. The main result is that greater market fragmentation leads to greater market tightness and depth without affecting market efficiency. The results confirm theoretical predictions that market fragmentation boosts liquidity through quote competition across exchanges.

Ämnesord

SAMHÄLLSVETENSKAP  -- Ekonomi och näringsliv -- Företagsekonomi (hsv//swe)

SOCIAL SCIENCES  -- Economics and Business -- Business Administration (hsv//eng)

Nyckelord

Market microstructure

fragmentation

liquidity

market efficiency

Business Administration

företagsekonomi

Publikations- och innehållstyp

vet (ämneskategori)

ovr (ämneskategori)