Instituto de Economía

Abstract: Speed has become a signature of modern financial markets. This paper studies investors’ endogenous speed acquisition, alongside their information acquisition. In equilibrium, speed heterogeneity endogenously arises across investors, temporally fragmenting the process of price discovery. A deterioration in long-run price efficiency ensues. Intra- and intertemporal competition among investors drive speed and information to be either substitutes or complements. The model cautions the dysfunction of information aggregation in financial markets: An advancement in the information technology might worsen price efficiency, because it can endogenously complement investors’ speed acquisition, further fragmenting the price discovery process and hurting price discovery.