Speed and Learning in High-Frequency Auctions

32 Pages Posted: 2 Mar 2016 Last revised: 27 Apr 2020

See all articles by Marlene Haas

Marlene Haas

Independent

Mariana Khapko

University of Toronto - Finance Area; Swedish House of Finance

Marius Zoican

University of Toronto at Mississauga - Department of Management; University of Toronto - Rotman School of Management

Date Written: April 26, 2020

Abstract

Faster trading improves liquidity in periodic call auction markets, in contrast to continuous-time
markets. We build a model where high-frequency traders (HFTs) engage in duels to trade on
stale quotes. More frequent periodic auctions increase the likelihood that a single HFT arrives in
any given auction and subsequently acts as a monopolist on information. Higher trading speed
increases the expected number of arbitrageurs participating in auctions, promoting competition
between snipers and improving liquidity. We find that faster trading and longer auction intervals
are substitute instruments to reduce bid-ask spreads. Relative to continuous-time trading,
periodic batch auctions reduce HFT informational rents.

Keywords: high-frequency trading, batch auction markets, liquidity, adverse selection

JEL Classification: D43, D47, G10, G14

Suggested Citation

Haas, Marlene and Khapko, Mariana and Zoican, Marius, Speed and Learning in High-Frequency Auctions (April 26, 2020). Journal of Financial Markets, Forthcoming, Paris December 2016 Finance Meeting EUROFIDAI - AFFI , Available at SSRN: https://ssrn.com/abstract=2738071 or http://dx.doi.org/10.2139/ssrn.2738071

Marlene Haas

Independent

Mariana Khapko

University of Toronto - Finance Area ( email )

Toronto, Ontario M5S 3E6
Canada

Swedish House of Finance ( email )

Drottninggatan 98
Stockholm
Sweden

Marius Zoican (Contact Author)

University of Toronto at Mississauga - Department of Management ( email )


Canada

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

HOME PAGE: http://www.mariuszoican.org

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