In modern public equity markets, liquidity is provided by a heterogeneous set of traders with vastly different speeds. We study the consequences of information arrival in such a setting. We present a model that predicts faster traders achieve a relative increase in profits obtained from liquidity provision following information events through (i) avoiding adverse selection by canceling mispriced quotes, and (ii) winning the race to post updated quotes. We also find strong support for these model predictions using data from the Toronto Stock Exchange. The identification strategy is based on an unanticipated "fake news" event in which the Twitter feed of the Associated Press falsely reported a terrorist attack.(c) 2021 Elsevier B.V. All rights reserved.
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Univ Western Australia, UWA Business Sch, M250 35 Stirling Highway Crawley, Perth, WA 6009, AustraliaUniv Western Australia, UWA Business Sch, M250 35 Stirling Highway Crawley, Perth, WA 6009, Australia
Cahill, Daniel
Fong, Kingsley
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Univ New South Wales, Sch Banking & Finance, Sydney, NSW, AustraliaUniv Western Australia, UWA Business Sch, M250 35 Stirling Highway Crawley, Perth, WA 6009, Australia
Fong, Kingsley
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Wee, Marvin
Yang, Joey Wenling
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Univ Western Australia, UWA Business Sch, M250 35 Stirling Highway Crawley, Perth, WA 6009, AustraliaUniv Western Australia, UWA Business Sch, M250 35 Stirling Highway Crawley, Perth, WA 6009, Australia