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Speed competition and strategic trading

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  • He, Xue-Zhong
  • Kang, Junqing

Abstract

Speed competition incentivizes fast traders to trade earlier and temporally fragments the price discovery process. Large traders internalize their price impact and screen trading aggressiveness to resolve the pre-trading uncertainty proportional to the number of traders. Therefore, price discovery in the late period depends on the number of slow traders and the amount of fundamental uncertainty resolved by fast traders. A concentration of fast or slow traders harms price discovery in the late period, generating hump-shape overall price informativeness to speed competition. With fast information diffusion, speed competition harms the overall price informativeness, unless fast traders are high-frequency traders.

Suggested Citation

  • He, Xue-Zhong & Kang, Junqing, 2025. "Speed competition and strategic trading," Journal of Financial Markets, Elsevier, vol. 74(C).
    • Handle: RePEc:eee:finmar:v:74:y:2025:i:c:s1386418125000126
    DOI: 10.1016/j.finmar.2025.100972
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • D41 - Microeconomics - - Market Structure, Pricing, and Design - - - Perfect Competition
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design

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