Drivers and Effects of Stock Market Fragmentation
Using the BMLL Data Lab, academics at Goethe University Frankfurt examined the effects of market fragmentation on trading and market quality of small and medium enterprise (SME) stocks.
‘Our paper emphasises that the impact of fragmentation on market quality depends on stock-specific characteristics and is very different for small and large caps stocks in Europe.
We find a hockey stick effect of fragmentation on market quality: in the group of least actively traded stocks, market quality is not affected as trading mostly is on the main venue. Then, for stocks up to a certain activity threshold, market quality even decreases with increasing fragmentation. Finally, for stocks with higher levels of trading activity, higher fragmentation improves market quality.’ Peter Gomber, Goethe University Frankfurt.