Speed and Learning in High-Frequency Auctions

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