A GARCH analysis of dark-pool trades

Philippe de Peretti (1) , Oren Tapiero (1)

1 CES - Centre d'économie de la Sorbonne

The ability to trade in dark-pools without publicly announcing trading orders, concerns regulators and market participants alike. This paper analyzes the information contribution of dark trades to the intraday volatility process. The analysis is conducted by performing a GARCH estimation framework where errors follow the generalized error distribution (GED) and two different proxies for dark trading activity are separately included in the volatility equation. Results indicate that dark trades convey important information on the intraday volatility process. Furthermore, the results highlight the superiority of the proportion of dark trades relative to the proportion of dark volume in affecting the one-step-ahead density forecast

Mots clés: Dark Pools; Density Forecast; Dark Volume; Dark trade

Domaines: Finance quantitative [q-fin.CP]

Philippe de Peretti, Oren Tapiero. A GARCH analysis of dark-pool trades. Comment la régulation financière peut-elle sortir l'Europe de la crise ?, Ecole nationale d'administration, pp.161-182, 2014. ⟨hal-00984834⟩