Dark trading and price discovery

Carole Comerton-Forde*, Talis J. Putnins

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review


Regulators globally are concerned that dark trading harms price discovery. We show that dark trades are less informed than lit trades. High levels of dark trading increase adverse selection risk on the lit exchange by increasing the concentration of informed traders. Using both high- and low-frequency measures of informational efficiency we find that low levels of non-block dark trading are benign or even beneficial for informational efficiency, but high levels are harmful. In contrast, we find no evidence that block trades in the dark impede price discovery. (C) 2015 Elsevier B.V. All rights reserved.

Original languageEnglish
Pages (from-to)70-92
Number of pages23
JournalJournal of Financial Economics
Issue number1
Publication statusPublished - Oct 2015


  • dark pool
  • price discovery
  • efficiency
  • informed traders
  • limit order
  • liquidity providers
  • market quality
  • dealer markets
  • fragmentation
  • transparency
  • information
  • upstairs
  • competition


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