Dr. McInish’s Paper Set For Publication in the Journal of Financial Economics
For release: April 14, 2014
Dr. Thomas McInish, professor of the Department of Finance, Insurance and Real Estate
and the holder of the Chair of Excellence, is set to have his paper, “Trading Rules,
Competition for Order Flow and Market Fragmentation,” published in the Journal of
Financial Economics, which is among the top journals of its discipline.
In this paper, McInish discusses the competition taking place between traditional
stock exchanges and new ‘dark’ trading venues while noting an important difference
in regulatory treatment. A regression discontinuity design is implemented that was
used to find how spread constraints have significantly weakened the exchanges’ competitiveness.
The paper demonstrates how a probability of subsequent order execution will increase
as a result of more orders migrating to dark pools, which raises liquidity. The ability
to circumvent time priority of displayed limit orders is listed as one of the causes
of the rapid rise in U. S. equity market fragmentation, as well.
Dr. McInish co-authored this paper with Dr. Ronald Masulis, professor of Finance at
the University of New South Wales – Australian School of Business and Amy Kwan, professor
of Finance at the University of Sydney.