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Xin Wang Assistant Professor Division of Banking & Finance Nanyang Business School Nanyang Technological University Contact: Email: xin.wang [AT] ntu.edu.sg Address: S3-B1B-60, 50 Nanyang Ave, Singapore 639798 Phone: +65-6790-5706 Research Interests: Market Microstructure, Financial Intermediation, Macro-Finance and FinTech Curriculum Vitae (Jan. 2023) |
Xin Wang joined Nanyang Business School in NTU as an Assistant Professor of Banking & Finance division in 2018. His research interests are in the areas of theoretical and empirical Market Microstructures, Financial Intermediation, Macro-Finance, and FinTech. His current research looks at how recent financial technology innovations affect trading in the secondary market, existing intermediaries of credit, and the transmission of monetary policy. He received his Ph.D. degree from the University of Illinois at Urbana-Champaign.
Publications
2nd SAFE Market Microstructure Conference (Goethe University Frankfurt), 2018 Stern Microstructure Conference, 11th Financial Risks International Forum (Paris), 2018 NTU Finance Conference, 2018 Front Range Finance Seminar*, UCLA Anderson*, Telfer Annual Conference on Accounting and Finance 2018*, University of Florida*, University of Rochester*, Carlson Junior Conference at the University of Minnesota*, Wabash River Conference at the Indiana University*, Smokey Mountain Conference* (* indicates presentation by co-author)
Abstract: We model competition for liquidity provision between high-frequency traders (HFTs) and slower execution algorithms (EAs) designed to minimize investors’ transaction costs. Under continuous pricing, EAs dominate liquidity provision by using aggressive limit orders to stimulate HFTs’ market orders. Under discrete pricing, HFTs dominate liquidity provision if the bid-ask spread is binding at one tick. If the tick size (minimum price variation) is not binding, EAs choose between stimulating HFTs and providing liquidity to non-HFTs. Transaction costs increase with the tick size but can be negatively correlated with the bid-ask spread when all traders can provide liquidity.
Working Papers
Revise & Resubmit, The Journal of Financial and Quantitative Analysis
Invited by the Journal of Financial and Quantitative Analysis for dual submission (17th Central Bank Conference on the Microstructure of Financial Markets)
Abstract: We develop a new framework to examine the effects of retail central bank digital currencies (CBDCs) on financial inclusion and stability, particularly how the results depend on an economy's existing degree of financial development. We demonstrate that when offering CBDCs in underdeveloped economies, some households migrate from cash to CBDCs. However, the competition between CBDCs and non-bank-issued electronic money (e-money) poses a significant threat to disintermediate banks. When offering CBDCs in developed economies, few households migrate from cash to CBDCs. Nevertheless, CBDCs can effectively constrain non-bank e-money and hence strengthening financial stability. Overall, our findings suggest that retail CBDCs can be useful for promoting financial inclusion only in underdeveloped economies and strengthening financial stability in terms of curbing non-bank e-money only in developed ones. An economy needs to consider the motivations and existing degree of financial development when offering CBDCs.
EFA 2018, Finance Down Under 2018, 16th Annual International Industrial Organization Conference
Abstract: This paper shows that a key driver of stock exchanges' competition on order-processing speeds is the Order Protection Rule, which requires an exchange to route its customers' orders to other exchanges with better prices. Faster exchanges attract more price-improving limit orders because the probability of being bypassed by trades with inferior prices on other exchanges is reduced. When all exchanges speed up, the bypassing probability can increase, potentially harming the welfare of investors. In contrast, increasing connection speeds between exchanges raise investor welfare by reducing the bypassing probability. Nevertheless, no exchange wants to improve connection speeds because this will reduce its trading volume. I provide empirical evidence supporting these predictions. Overall, my findings suggest that exchanges do not necessarily compete on liquidity-enhancing dimensions.
Abstract: New stock exchange designs such as frequent batch auctions and order-delay designs have been proposed to slow down the trading speed and eliminate the speed arms race among high-frequency traders (HFTs). This paper investigates how newly designed exchanges with these 'speed-bump' features would compete against traditional exchanges. I find that among order-delay proposals, the most effective design is to delay only liquidity-taking orders as proposed by the Chicago Stock Exchange. Frequent batch auctions are shown not to improve liquidity when the degree of private information is high enough. Moreover, when frequent batch auctions are implemented, exchanges have incentives to compete on the frequency of batch auctions. Finally, I show that exchanges with a large market share of total trading volume may lack incentives to implement a 'speed bump' even when these innovative designs could improve long-term investor welfare. Therefore, the interests of exchanges may not be aligned with those of long-term investors with regard to how they value designs that alleviate 'sniping' by HFTs.
Work in Progress
Teaching
Publications
- Who Provides Liquidity, and When? (with Mao Ye and Sida Li), 2021, Journal of Financial Economics, 141.3: 968-980.
2nd SAFE Market Microstructure Conference (Goethe University Frankfurt), 2018 Stern Microstructure Conference, 11th Financial Risks International Forum (Paris), 2018 NTU Finance Conference, 2018 Front Range Finance Seminar*, UCLA Anderson*, Telfer Annual Conference on Accounting and Finance 2018*, University of Florida*, University of Rochester*, Carlson Junior Conference at the University of Minnesota*, Wabash River Conference at the Indiana University*, Smokey Mountain Conference* (* indicates presentation by co-author)
Abstract: We model competition for liquidity provision between high-frequency traders (HFTs) and slower execution algorithms (EAs) designed to minimize investors’ transaction costs. Under continuous pricing, EAs dominate liquidity provision by using aggressive limit orders to stimulate HFTs’ market orders. Under discrete pricing, HFTs dominate liquidity provision if the bid-ask spread is binding at one tick. If the tick size (minimum price variation) is not binding, EAs choose between stimulating HFTs and providing liquidity to non-HFTs. Transaction costs increase with the tick size but can be negatively correlated with the bid-ask spread when all traders can provide liquidity.
Working Papers
- Financial Development, Non-bank E-Money, and Central Bank Digital Currency, with Xiaoxiong Hu
Revise & Resubmit, The Journal of Financial and Quantitative Analysis
Invited by the Journal of Financial and Quantitative Analysis for dual submission (17th Central Bank Conference on the Microstructure of Financial Markets)
Abstract: We develop a new framework to examine the effects of retail central bank digital currencies (CBDCs) on financial inclusion and stability, particularly how the results depend on an economy's existing degree of financial development. We demonstrate that when offering CBDCs in underdeveloped economies, some households migrate from cash to CBDCs. However, the competition between CBDCs and non-bank-issued electronic money (e-money) poses a significant threat to disintermediate banks. When offering CBDCs in developed economies, few households migrate from cash to CBDCs. Nevertheless, CBDCs can effectively constrain non-bank e-money and hence strengthening financial stability. Overall, our findings suggest that retail CBDCs can be useful for promoting financial inclusion only in underdeveloped economies and strengthening financial stability in terms of curbing non-bank e-money only in developed ones. An economy needs to consider the motivations and existing degree of financial development when offering CBDCs.
EFA 2018, Finance Down Under 2018, 16th Annual International Industrial Organization Conference
Abstract: This paper shows that a key driver of stock exchanges' competition on order-processing speeds is the Order Protection Rule, which requires an exchange to route its customers' orders to other exchanges with better prices. Faster exchanges attract more price-improving limit orders because the probability of being bypassed by trades with inferior prices on other exchanges is reduced. When all exchanges speed up, the bypassing probability can increase, potentially harming the welfare of investors. In contrast, increasing connection speeds between exchanges raise investor welfare by reducing the bypassing probability. Nevertheless, no exchange wants to improve connection speeds because this will reduce its trading volume. I provide empirical evidence supporting these predictions. Overall, my findings suggest that exchanges do not necessarily compete on liquidity-enhancing dimensions.
Abstract: New stock exchange designs such as frequent batch auctions and order-delay designs have been proposed to slow down the trading speed and eliminate the speed arms race among high-frequency traders (HFTs). This paper investigates how newly designed exchanges with these 'speed-bump' features would compete against traditional exchanges. I find that among order-delay proposals, the most effective design is to delay only liquidity-taking orders as proposed by the Chicago Stock Exchange. Frequent batch auctions are shown not to improve liquidity when the degree of private information is high enough. Moreover, when frequent batch auctions are implemented, exchanges have incentives to compete on the frequency of batch auctions. Finally, I show that exchanges with a large market share of total trading volume may lack incentives to implement a 'speed bump' even when these innovative designs could improve long-term investor welfare. Therefore, the interests of exchanges may not be aligned with those of long-term investors with regard to how they value designs that alleviate 'sniping' by HFTs.
Work in Progress
- Virtual Banks and SMEs Financing, with Xiaoxiong Hu
Teaching
- FinTech in Investment Management at Nanyang Technological University, Spring 2019-present
- Financial Economics (Investments) at the University of Illinois at Urbana-Champaign, Fall 2015-Spring 2017
