Information Diffusion and Speed Competition

Speaker: Prof. Xuezhong He (University of Technology Sydney)

Topic:	Information Diffusion and Speed Competition
Time&Date:	12:00-13:30 pm, 2018/11/22 (Thursday)
Venue:	Room 619, Teaching A
Speaker:	Prof. Xuezhong He (University of Technology Sydney)
Abstract:	Do increasing information transparency and trading speed competition improve market quality? By introducing heterogeneous information diffusion and trading speed hierarchies in an otherwise standard Kyle model, we examine the joint impact of information transparency and trading speed competition on strategic trading and market quality. With faster information diffusion, the speed hierarchies create first-mover advantage and intensify fast trading, re-shaping the trade-off between the weakening effect on information asymmetry and the crowding-out effect on fast and informed trading. We identify strategic complementarities in informed and fast trading in the sense that aggressive trading of (partially informed) fast traders encourages more aggressive informed trading. This strategic complementarity, together with the learning of (partially informed) slow traders and market maker, tends to abate significantly the negatively crowding-out effect of fast information diffusion on market quality. Therefore greater information transparency and trading speed competition can improve market quality even though the crowding-out effect can become very significant.