Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/153978
Authors: 
Colliard, Jean-Edouard
Year of Publication: 
2013
Series/Report no.: 
ECB Working Paper 1545
Abstract: 
Market participants often invest in order to acquire information that pertains to the market itself (e.g. order flow) rather than to fundamentals. This enables them to infer more information from past trades. I show that agents trading on such information, typically high-frequency traders, decrease the likelihood of short-lived mispricings by trading against price pressure. In the long-run however, such countervailing speculation amounts to signal-jamming, slowing down price discovery. These traders insure the market against short-run crashes by "catching falling knives". Higher adverse selection and slower convergence form the "premium" paid by other market participants.
Subjects: 
High-frequency trading
market crashes
Speculation
supply information
JEL: 
D82
G0
G12
G14
Document Type: 
Working Paper

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