Coming Early to the Party

Are high–frequency traders informed?

“…6 Our paper is part of a new strand of the microstructure literature that investigates the presence of HFTs in the call auction trading environment. Bellia et al (2020Bellia et al ( , 2017 have recently investigated the role of HFTs in the preopening process of the Tokyo Stock Exchange and the Paris Stock Exchange. Although the detection of informed HFTs is not their focus, these two studies collectively provide evidence that HFTs drastically participate in the preopening phase and that they play a leading role in both the price formation process and the liquidity dynamics of the call auction market.…”

“…Our paper contributes to the literature on the effect of HFTs on price quality by investigating a trading system in which investors are allowed to gather and process information for an extended intraday period (1 hour and 45 minutes) until the clearing time. To the best of our knowledge, only a few other studies have examined thus far the characteristics of HFTs' quotes in call auctions (e.g., Bellia et al, 2017;Boussetta et al, 2020), and none has focused on the detection of informed HFTs.…”

“…Note that the data set employed herein is identical to that used byBellia et al (2017) and part of that used byBoussetta et al (2020).…”

“…For example, some segments in Xetra as well as the Bats/Chi-x multilateral trading facility, which inter-connects multiple European platforms, are also at the preopening phase before 09:00. Moreover, French firm earnings are announced around 08:00(Bellia et al, 2017).…”

Call of duty: Designated market maker participation in call auctions

“…High frequency traders are much less active in call auctions (e.g. Bellia et al (2017), Anagnostidis et al (2018)). Consequently, designated market makers may be facing less competition in call auctions and, thus, may be able to earn higher trading profits.…”