Do dark pools affect asset price volatility? A Study of the US Equity Market.

Abstract

Recent years there has been an increased usage of dark pools followed by a rise in interest to study the field. During 2018, 14% of the US equity trading was made in dark pools. It is therefore highly relevant to consider dark pools effect on market qualities such as asset price volatility. This thesis investigates if there is a relation between dark pool trading and asset price volatility on the US equity market during the time period of 2015-2019. A quantitative method has been applied by running two regressions with time fixed effects on historical data. With statistical significance, the thesis suggests that there is a relation. Further, the results imply that there is an increasing effect on asset price volatility when dark trading percentage is high. The thesis is based on historical data for 100 stocks in the national market system tier 1 listed as alternative trading systems who report to the Financial Industry Regulatory Authority.