De Economist

, Volume 166, Issue 2, pp 179–206 | Cite as

Fragmentation and Market Quality: The Case of European Markets

  • Paulo Pereira da Silva


This paper questions whether the proliferation of alternative trading venues in Western Europe after MiFID implementation in 2007 affected market quality. By means of a difference-in-differences analysis, we evaluate changes in market quality of stocks that initiated trading in Multilateral Trading Facilities (MTF) in relation to matched samples. Our analysis provides evidence that the overall liquidity (measured by transaction costs and price impact) and trading activity increased in the short term with trade initiation in MTF. Notably, we show that fragmentation did not cause lower price precision or informativeness, but some tests suggest that fragmentation correlates positively with volatility. The results of this study are stronger for stocks with greater propensity for MTF trade initiation, i.e. stocks with greater size and liquidity prior to that event. Interestingly, the impact on liquidity and trading activity varied across stock exchanges and timing of MTF trade initiation. As for long run effects, our results suggest an improvement of overall liquidity and a neutral effect on the trading activity of traditional exchanges.


Market fragmentation Market quality Liquidity Price informativeness 

JEL Classification

G10 G14 G15 G23 G24 



The author thanks the editor and an anonymous referee for valuable comments and suggestions. The author is pleased to acknowledge financial support from Fundação para a Ciência e a Tecnologia (grant UID/ECO/04007/2013) and FEDER/COMPETE (POCI-01-0145-FEDER-007659).

Supplementary material

10645_2018_9316_MOESM1_ESM.docx (231 kb)
Supplementary material 1 (DOCX 231 kb)


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Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2018

Authors and Affiliations

  1. 1.CEFAGE, Universidade de Évora Palácio do VimiosoÉvoraPortugal
  2. 2.CMVM, Portuguese Securities CommissionLisbonPortugal

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