[Lecture, Nov 27] Seminar of GZFSRM
 
time: 2018-11-26

Title: Information Diffusion and Speed Competition

Speaker: Professor Tony He, University of Technology Sydney

Time: 3:30-5:00 pm, November 27, 2018

Venue: Room 201, Building 22, Wushan Campus


Host: Guangzhou Research Base for Financial Services Innovation and Risk Management (GZFSRM)


Introduction to the Speaker:

Tony is an internationally recognized expert in financial market modelling and nonlinear dynamics in finance and economics. His research interests cover a broad area of theoretical asset pricing and financial market modelling with heterogeneous beliefs, adaptive learning, and social interaction, and empirical testing on various financial market anomalies and stylized facts such as volatility clustering, profitability of optimal trading, and return predictability. His international research profile is attested by his more than 40 publications in the field of finance and economics, invited contributions to the prestigious Handbook of Financial Markets and Handbook of Computational Economics, numerous keynote talks in the international conferences, and a number of competitively national and international research grants. As a mathematician in his earlier career, Tony has established an international reputation in the field of the theory and application of nonlinear dynamical systems and published more than 40 papers in this area. He has organized and served as committee member of international workshops and conferences. He has also served as associate editor and reviewer of a number of journals in finance, economics and mathematics.


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 negative 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 be very significant.