Dark trading, adverse selection and liquidity in aggregate markets

Matteo Aquilina, Ivan Diaz-Rainey, Gbenga Ibikunle, Yuxin Sun

Research output: Working paper


We present the first evidence of the impact of dark trading on aggregate market quality. We find that dark trading at moderate levels enhances aggregate market transparency and liquidity, and reduces both adverse selection risk and pricing noise. However, there is a trading value-based threshold when dark trading starts to induce adverse selection, and thus impair market quality. We estimate this threshold to be about 16% of the aggregate FTSE350 index stocks’ trading value. The threshold varies according to stock trading activity, from about 9% for the most liquid stocks to 35% for the least liquid stocks in the index.
Original languageEnglish
Number of pages61
Publication statusPublished - May 2017


  • dark pools
  • networked markets
  • adverse selection
  • market transparency
  • pricing noise


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