82 Pages Posted: 1 Oct 2016 Last revised: 8 Dec 2018
Date Written: December 3, 2018
Speed is a salient feature of modern financial markets. This paper studies investors’ speed acquisition, alongside their information acquisition. Speed heterogeneity arises in equilibrium, fragmenting the information aggregation process temporally and affecting price informativeness nonmonotonically. Various competition effects drive speed and information to be either substitutes or complements. The model cautions the possible dysfunction of price discovery: An improving information technology might complement speed acquisition, which shifts the concentration of price discovery over time, possibly hurting price informativeness. Novel predictions are discussed regarding investor composition, their performance, and trading volume.
Keywords: speed, information, technology, price discovery, price efficiency
JEL Classification: D40, D84, G12, G14
Suggested Citation: Suggested Citation