High-speed market connections and information processing improve financial institutions' ability to seize trading opportunities, which raises gains from trade. They also enable fast traders to process information before slow traders, which generates adverse selection. We first analyze trading...

when investors’ ability to monitor the market improves, the ratio of messages (order submission and cancelations) to volume increases, consistent with recent evidence on the impact of computerization and algorithmic trading.

We study the reaction of nancial markets to aggregate liquidity shocks when traders face cognition limits. While each financial institution recovers from the shock at a random time, the trader representing the institution observes this recovery with a delay, reflecting the time it takes to...

We study the reaction of nancial markets to aggregate liquidity shocks when traders face cognition limits. While each nancial institution recovers from the shock at a random time, the trader representing the institution observes this recovery with a delay, re ecting the time it takes to collect...