Is market fragmentation harming market quality?

Maureen O'Hara, Mao Ye

Research output: Contribution to journalArticlepeer-review


We examine how fragmentation is affecting market quality in US equity markets. We use newly available trade reporting facilities (TRFs) data to measure fragmentation, and we use a variety of empirical approaches to compare execution quality and efficiency of stocks with more and less fragmented trading. We find that fragmentation affects all stocks; more fragmented stocks have lower transactions costs and faster execution speeds; and fragmentation is associated with higher short-term volatility but greater market efficiency, in that prices are closer to being a random walk. Our results that fragmentation does not appear to harm market quality are consistent with US markets being a single virtual market with multiple points of entry.

Original languageEnglish (US)
Pages (from-to)459-474
Number of pages16
JournalJournal of Financial Economics
Issue number3
StatePublished - Jun 2011


  • Market efficiency
  • Market microstructure
  • Security market regulation

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics
  • Strategy and Management


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