Speed and Learning in High-Frequency Auctions

28 Pages Posted: 2 Mar 2016 Last revised: 9 Sep 2019

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

Date Written: September 7, 2019

Abstract

Faster trading improves liquidity in frequent 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. Frequent market clearing increases the likelihood of a single HFT arriving in any given auction, who subsequently acts as a monopolist on information. Higher trading speed increases the expected number of arbitrageurs participating in auctions, promoting price 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, frequent 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 (September 7, 2019). 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

No Address Available

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 - Rotman School of Management ( email )

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

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

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


Canada

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