Tomy Lee

Assistant Professor, Economics and Business, Central European University

FTG member (2023-)

Research Interests: Design of Financial Markets, Over-the-Counter Markets, Applied Theory

CV: Click Here 

Contact: leeso[at]ceu.edu

Google Scholar, ORCiD

Published

Review of Economic Dynamics (Special Issue on Fragmented Financial Markets; available: https://doi.org/10.1016/j.red.2019.04.010)

I examine the impact of cross-venue latency on market quality using a model of informed trader competition in a fragmented market. As cross-venue latency decreases, liquidity and price discovery improve while the expected profits of informed traders decline. Moreover, a fall in the latency of one venue can harm liquidity at the other venue. An extension predicts that, as the informed traders consolidate or outsource trading, benefits of shorter cross-venue latency are attenuated and its harmful effects intensify. My model generates testable predictions about the effects of changes in cross-venue latency on market quality.

Working Papers

Why Trade Over-the-Counter? (Forthcoming, Journal of Finance)

(with Chaojun Wang)

Internet Appendix

Over-the-counter trading thrives despite opposing regulatory pressure. In our model, traders who are less likely to be informed optimally choose the OTC market, where a dealer offers a trader-specific discount. Restricting the dealer's ability to price discriminate causes some traders to exit, but induces others with larger gains from trade to enter. Overall, welfare strictly improves if adverse selection risk is low, even as aggregate trade volume falls and average bid-ask spread widens. In a benchmark case, closing the OTC market would raise welfare specifically where most trades are over the counter. A simple procedure implements the optimal Pigouvian tax.

Discussion Slides

“Less is More” (Yueshen, Zou; 2023, Sep)

“Dealer Heterogeneity and Exchange Rates” (Gallien, Glebkin, Kassibrakis, Malamud,  Teguia; 2023, Aug)

“On ESG Investing” (Goldstein, Kopytov, Shen, Xiang; 2022, Aug)

“Fractional Trading” (Da, Fang, Lin; 2022, June)

"Overdue Debts and Financial Exclusion" (Berlinger, Dobránszky-Bartus, Molnár; 2020, Nov)

"Information and Optimal Trading Strategies with Dark Pools" (Bayona, Dumitrescu, Manzano; 2019, Nov)

"OTC Discount" (de Roure, Moench, Pelizzon, Schneider; 2018, Dec)

"Discriminatory Pricing of Over-the-Counter Derivatives" (Hau, Hoffmann, Langfield, Timmer; 2018, Jan)

"Gold Price Dynamics and the Role of Uncertainty" (Beckmann, Berger, Czudaj; 2016, June)