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Speed and learning in high-frequency auctions

Author

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  • Haas, Marlene
  • Khapko, Mariana
  • Zoican, Marius

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.

Suggested Citation

  • Haas, Marlene & Khapko, Mariana & Zoican, Marius, 2021. "Speed and learning in high-frequency auctions," Journal of Financial Markets, Elsevier, vol. 54(C).
    • Handle: RePEc:eee:finmar:v:54:y:2021:i:c:s1386418120300525
    DOI: 10.1016/j.finmar.2020.100583
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    Cited by:

    1. Brolley, Michael & Zoican, Marius, 2023. "Liquid speed: A micro-burst fee for low-latency exchanges," Journal of Financial Markets, Elsevier, vol. 64(C).

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    More about this item

    Keywords

    High-frequency trading; Batch auction markets; Liquidity; Adverse selection;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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