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Beyond the Frequency Wall: Speed and Liquidity on Batch Auction Markets

Author

Listed:
  • Marlene Haas

    (University of Washington [Seattle])

  • Marius Andrei Zoican

    (DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique)

Abstract

Frequent batch auction (FBA) markets do not necessarily improve liquidity relative to continuous-time trading. HFTs submit quotes that become stale if the market clears before new information becomes public, and may be sniped by other privately-informed HFTs. Less frequent auctions enhance learning by allowing for more public news: liquidity improves. For infrequent enough auctions, a frequency "wall" emerges as lower adverse selection is offset by lower liquidity demand by impatient traders. Beyond this "wall," longer auction intervals do not improve liquidity anymore. However, higher HFT speed stimulates price competition between arbitrageurs, allowing for a lower spread.

Suggested Citation

  • Marlene Haas & Marius Andrei Zoican, 2016. "Beyond the Frequency Wall: Speed and Liquidity on Batch Auction Markets," Post-Print hal-01484805, HAL.
    • Handle: RePEc:hal:journl:hal-01484805
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    References listed on IDEAS

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    Cited by:

    1. Jun Aoyagi, 2019. "Strategic Speed Choice by High-Frequency Traders under Speed Bumps," ISER Discussion Paper 1050, Institute of Social and Economic Research, Osaka University.

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    More about this item

    Keywords

    market design; high-frequency trading; batch auction markets; liquidity; adverse selection; D43; D47; G10; G14;
    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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