Are high–frequency traders informed? |
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| Institution: | 1. Institut Europlace de Finance, Palais Brongniart, 28 place de la Bourse, 75002, Paris, France;2. European Financial Data Institute, CNRS UPS 3390, 150 rue de la chimie, CS 40 700 – 38058, Grenoble Cedex 9, France;3. Léonard de Vinci Pôle Universitaire, Research Center, 92916, Paris, La Défense, France;4. Université catholique de Louvain, iMMC, 1348, Louvain–la–Neuve, Belgium;1. Aletheia University, Taiwan;2. National Taichung University of Science and Technology, Taiwan;1. Narodowy Bank Polski, Poland;2. University of Lodz, Poland;1. IMUVa, Universidad de Valladolid, Spain;2. Universidad de Murcia, Spain;1. Faculty of Economics, Chuo University, Japan;2. Graduate School of Economics, Kyoto University, Japan |
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| Abstract: | Are high–frequency traders (HFTs) informed? To address this question, we examine HFTs' activity in the call auction environment, where speed-related trading is limited and signal processing capacity becomes more relevant. To model the call market, we consider the Kyle (1989) rational expectations framework for strategic trading. The test we propose for detecting informed HFTs in this market assesses potential deviations of the informativeness of HFTs' aggregate (net) demand, from the informativeness of the aggregate demand submitted by the rest of the traders. Data from the Euronext Paris preopening phase indicate that informed HFTs are present in the market just before the opening. Our results provide useful guidance for the assessment of the influence of HFTs’ quotes on price quality, an important issue for market regulators and policy makers. |
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| Keywords: | High–frequency trading Call auction Rational expectations Price efficiency G1 G14 |
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