Fragmentation of Day versus Night Markets

Research in Finance

ISBN: 978-0-7623-1345-7, eISBN: 978-1-84950-441-6

ISSN: 0196-3821

Publication date: 11 December 2006


Stock markets during the day are relatively centralized, while night markets, due to the dominance of electronic trading venues, are fragmented. Though electronic markets at night allow more competition for order flow, they may result in decreased order interaction and decreased transparency. Using transaction data for three exchange traded funds (ETFs), we find that bid–ask spreads are wider at night due to higher order processing costs, market maker rents, and inventory holding costs. Results show that night markets are informationally fragmented and are not able to impound information available in net order flow to the same degree as day markets.


Richie, N. and Madura, J. (2006), "Fragmentation of Day versus Night Markets", Chen, A. (Ed.) Research in Finance (Research in Finance, Vol. 23), Emerald Group Publishing Limited, Bingley, pp. 99-125.

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