Annals of Finance

, Volume 13, Issue 4, pp 435–451 | Cite as

Stock markets fragmentation, volatility and final investors

Research Article


The 2000s in equity markets are marked by two major regulatory shocks: RegNMS in the United States, and MiFID in the European Union. Simultaneously, there is a massive increase in the proportion of high-frequency trading, and market orders volume. However, trading volumes do not significantly increase. We propose a theoretical model describing the effects of stock markets fragmentation on two types of investors optimization problems: “intermediary” high-frequency and “final” investors. Volatility has a permanent and a transitory component, whose weights depend on market fragmentation via the share of non-marketable orders of intermediary investors. The trading volume of final investors depends on market fragmentation both directly via transaction costs, and indirectly via total volatility. Finally a shock in fragmentation may lead to a decrease in trading volume, enhanced in the case of an equity markets crisis by a rise in the components of volatility.


Stock markets fragmentation Final investors Intermediary investors Implicit transaction costs Volatility 

JEL Classification

E44 G18 



The author wishes to thank Gunther Capelle Blancard, Thierry Foucault, Ali Kutan, Delphine Lahet, Charles Albert Lehalle, Catherine Lubochinsky, Nadine Marchand, Simon Neaime, Catherine Refait-Alexandre, Maya Shaton, Dominique Torre, Anne-Gael Vaubourg and Laurent Weill for their remarks and suggestions. I also thank for their comments on earlier versions of this paper the participants to the 31th International Symposium on Money, Banking and Finance (Lyon, 19–20 June 2014), the 32nd International Symposium on Money, Banking and Finance (Nice, 11–12 June 2015), the 3rd Bordeaux Workshop in International Economics and Finance (Bordeaux, 11 December 2015), and the 2015 Paris Financial Management Conference (Paris, 14–15 December 2015). Finally I am grateful to the Editor and the referee for their careful reading of the paper and their suggestions.


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Copyright information

© Springer-Verlag GmbH Germany 2017

Authors and Affiliations

  1. 1.LEADUniversité de ToulonToulonFrance
  2. 2.CAC IXXIENS LyonLyonFrance
  3. 3.ToulonFrance

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