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Is faster information transmission always better?

Author

Listed:
  • Yan, Yu
  • Tong, Yan
  • Wang, Yiming

Abstract

This paper establishes a continuous-time heterogeneous beliefs model to investigate the impact of information transmission speed on welfare. We calibrate the required parameters using real data from the S & P 500. Numerical simulations based on this calibration indicate that faster information transmission leads to increased volatility in risky assets, thereby reducing the level of trader welfare. The combined study of theory and numerical simulation shows that liquidity constraints and short-selling constraints are equivalent to reducing the speed of information diffusion, which in turn can enhance trader welfare. In summary, policymakers may consider releasing some preliminary information before announcing new policies.

Suggested Citation

  • Yan, Yu & Tong, Yan & Wang, Yiming, 2025. "Is faster information transmission always better?," Finance Research Letters, Elsevier, vol. 75(C).
    • Handle: RePEc:eee:finlet:v:75:y:2025:i:c:s1544612325000169
    DOI: 10.1016/j.frl.2025.106751
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    Keywords

    Information transmission; Heterogeneous beliefs; Trader welfare; Short-sale constraints; Liquidity constraints;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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