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M. Fabricio Perez

M. Fabricio Perez receives funding for new SSHRC Insight Grant project

M. Fabricio Perez, associate professor in the Lazaridis School of Business and Economics and director of the Financial Services Research Centre, received $129,800 in funding from the Social Sciences and Humanities Research Council for his Insight Grant project entitled, “Price Discovery and Market Fragmentation.” Andriy Shkilko, Canada Research Chair in Financial Markets is a co-investigator on the project.

The project will explore how financial markets have evolved dramatically in recent decades as advances in information technology and changing regulation lowered barriers to entry and contributed to the growth of multiple trading venues. Multiple markets give rise to the phenomenon called fragmentation, whereby liquidity is fragmented across multiple trading platforms, and traders must continuously monitor all of these platforms to understand current market conditions.

The project aims to examine how information is incorporated into asset prices in today's fragmented environment. One of the central roles of financial markets is price discovery. Efficient price discovery prevents prices from abrupt fluctuations, thus aiding financial and economic stability. It also ensures that market participants, from individuals to institutions, invest at fair valuations and at low cost. When markets are fragmented however, information is incorporated into prices at multiple locations or through multiple assets, complicating and potentially slowing down the price discovery process. In turn, diminished price discovery leads to inefficiencies and harms investors who rely on markets to deliver correct prices. These issues are of concern to regulators in many jurisdictions. The International Organization of Securities Commissions, for instance, has stated that "fragmented markets [are] unlikely to ensure high quality price discovery."

Despite the importance of understanding the effects of fragmentation on price discovery, the academic literature relating the two phenomena is rather limited and the researchers will address this gap.

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