Network Indicators of Information Asymmetry in Fast Trading Markets

ABSTRACT Although information technology has revolutionized trading and delivered substantial gains in efficiency and responsiveness, it has also produced an adverse side effect: episodes of intensified informed trading, of which flash crashes are the most visible manifestation. The structural conditions that distinguish markets undergoing such episodes from calmer ones remain incompletely understood. This paper contributes to closing that gap by establishing a set of network metrics that capture how the topology of the trading network reorganizes in response to information asymmetries. These market configurations refer to the evolving structure of trading activity, shaped by the distribution of participants, their interactions and the timing of information flow. To this purpose, we use an agent‐based model to analyze crucial aspects of market dynamics that traditional analytical models struggle to capture, namely the sudden changes in the topology of the market network that reflect shifts in trading behavior or connectivity. We find that the proposed network metrics correlate strongly with standard indicators of order‐flow toxicity, confirming that shifts in market topology reliably reflect the underlying levels of adverse selection and informed trading.