Special issue on Fragmented Markets
The articles in this ebook find that price discovery typically is concentrated to one lead market; that in cross listed markets price discovery consolidates provided that at least one market allows the cross-listed stock to trade freely with no restrictions on short selling and marking lending; the institutional investor segment of the market benefits from an informational advantage and institutional exit from the market in crisis is a significant driver of instability. Policy recommendations can be deducted from this work. For example, the conclusions in these papers emphasize the findings in the previous literature that fragmentation can lead to benefits from competition, but also highlight two new results; the need to incentivize institutional investors to stabilize fragmented markets and the need to improve the information individual investors have access to, particularly regarding alternative trading routes to achieve best execution.
The relatively scarce availability of research on topics related to fragmentation that emerged in the compilation of this special issue highlights the need for more work in this area. For example the body of work in high frequency trading is growing rapidly, we have in this issue shown that HFT is directly connected to fragmentation of securities markets.
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