In this paper, we develop a model in which overconfident market participants and rational speculators trade against trend-chasers. We show that the growth and the burst of a financial bubble stem from positive feedback trading. However, the presence of overconfident traders and the risk aversion...

This paper analyzes the strategic competition between privately informed fast (FT) and slow traders (ST). In accordance with the overwhelming findings in the empirical literature, we find that the speed advantage of FTs has a beneficial effect on market liquidity as well as price efficiency. We...

In the following paper we analyze the strategic competition between fast and slow traders. The model of Kyle (1985) is adapted to analyze the effect of speed in such a model. A High Frequency Trader (HFT) is defined as a trader that has the ability to react to information faster than other...