Price Informativeness and High Frequency Trading in Electronic Call Auction Markets

46 Pages Posted: 12 Jan 2018 Last revised: 20 Oct 2018

See all articles by Panagiotis Anagnostidis

Panagiotis Anagnostidis

Institut Europlace de Finance (IEF) and European Financial Data Institute (EUROFIDAI)

Patrice C. Fontaine

Eurofidai (CNRS)

Christos Varsakelis

Catholic University of Louvain (UCL)

Date Written: March 17, 2018

Abstract

Recent microstructure literature has indicated that, due to their speed advantage, high frequency traders (HFTs) are able to react first to news and price changes, thus inducing information asymmetry into the trading process. Despite their speed advantage, however, it is still unclear whether HFTs are able to form accurate signals about asset fair values. We propose to examine this issue in the call auction environment where speed-related trading is limited. Using the rational expectations framework of Kyle (1989), we derive sufficient conditions for the existence of fundamentally informed HFTs. We test whether these conditions hold in the Paris opening call using a HFT flagged database and find that informed HFTs are present in the market prior to the opening, driving the equilibrium price to the fair value of the stock.

Keywords: High Frequency Trading, Call Auction, Rational Expectations, Price Efficiency

JEL Classification: G1, G14

Suggested Citation

Anagnostidis, Panagiotis and Fontaine, Patrice C. and Varsakelis, Christos, Price Informativeness and High Frequency Trading in Electronic Call Auction Markets (March 17, 2018). Available at SSRN: https://ssrn.com/abstract=3098718 or http://dx.doi.org/10.2139/ssrn.3098718

Panagiotis Anagnostidis

Institut Europlace de Finance (IEF) and European Financial Data Institute (EUROFIDAI) ( email )

Grenoble
France

Patrice C. Fontaine (Contact Author)

Eurofidai (CNRS) ( email )

150, rue de la Chimie - EUROFIDAI UMS CNRS 2748
UGA domaine universitaire
Grenoble Cedex 9, 38058
France

Christos Varsakelis

Catholic University of Louvain (UCL) ( email )

Place Montesquieu, 3
Louvain-la-Neuve, 1348
Belgium

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