Tomy Lee

I am an Assistant Professor in the Department of Economics and Business starting August 2018. I received my MA and PhD in economics from the University of Toronto, and my primary research interests include over-the-counter markets, information and learning in finance, and applied theory.

QUALIFICATION

• PhD, Economics, University of Toronto

Published

• Latency in Fragmented Markets

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? When Investors Want Price Discrimination

We show that trading over-the-counter is privately optimal yet can harm welfare even if its prices were competitive. Dealers price discriminate to the benefit of traders who are less likely to be informed, thereby cream-skimming them into the OTC market and leaving adverse selection risk concentrated on exchanges. Traders who are induced to trade by better OTC prices have smaller gains from trade than those who exit due to worse prices on the exchanges. Therefore, the entrants are mere “cheap substitutes” for the exiters, rendering trade volume and bid-ask spreads poor indicators of welfare. We also document and explain a positive correlation between the exchanges’ spread and their market share. Given this pattern, perhaps surprisingly, we show that allowing OTC trading harms welfare for assets that are mostly OTC-traded, such as swaps.