Speed Competition and Strategic Trading

48 Pages Posted: 5 Sep 2018 Last revised: 1 Nov 2022

See all articles by Xuezhong He

Xuezhong He

Xi'an Jiaotong-Liverpool University (XJTLU)

Junqing Kang

Lingnan College, Sun Yat-sen University

Date Written: November 1, 2022

Abstract

This paper examines the effect of speed competition on price informativeness in financial markets with large strategic traders. Speed competition temporally fragments the price discovery process. As a result, large traders internalize their price impact and strategically shade trading aggressiveness to resolve a fraction of the pre-trading uncertainty proportional to the number of traders in each trading round. Therefore, the concentration of fast traders improves information aggregation in the short run but harms it in the long run, generating hump-shape price informativeness to speed competition. Moreover, speed competition reduces overall price informativeness with a relatively high inter-temporal information dissemination over time. Still, it promotes overall price informativeness with a relatively low intra-temporal information spread among traders.

Keywords: Speed competition, information diffusion, strategic trading, price informativeness

JEL Classification: G12, G14, G18, D41, D44, D47, D82, D83, D84

Suggested Citation

He, Xue-Zhong 'Tony' and Kang, Junqing, Speed Competition and Strategic Trading (November 1, 2022). 2019 Financial Markets & Corporate Governance Conference, Available at SSRN: https://ssrn.com/abstract=3239821 or http://dx.doi.org/10.2139/ssrn.3239821

Xue-Zhong 'Tony' He (Contact Author)

Xi'an Jiaotong-Liverpool University (XJTLU) ( email )

111 Renai Road, SIP
Suzhou, JiangSu province 215123
China

Junqing Kang

Lingnan College, Sun Yat-sen University ( email )

No. 135, Xingang Xi Road
Haizhu District
Guangzhou, Guangdong 510275
China
+8613617319162 (Phone)

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