High-Frequency Trading and Price Informativeness
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Date
2019-03-09
Author
Gider, Jasmin
Schmickler, Simon
Westheide, Christian
SAFE No.
248_rev
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Abstract
We study how stock price informativeness changes with the presence of high-frequency trading (HFT). Our estimate is based on the staggered start of HFT participation in a panel of international exchanges. With HFT presence market prices are a less reliable predictor of future cash flows and investment, even more so for longer horizons. Further, idiosyncratic volatility decreases, mutual funds trade less actively and their holdings deviate less from the market-capitalization weighted portfolio. These findings suggest that price informativeness declines with HFT presence, consistent with theoretical models of HFTs' ability to anticipate informed order flow, reducing incentives to acquire fundamental information.
Research Area
Financial Markets
Keywords
high-frequency trading, price efficiency, information acquisition, information production
JEL Classification
G10, G14
Research Data
Topic
Corporate Finance
Saving and Borrowing
Trading and Pricing
Saving and Borrowing
Trading and Pricing
Relations
1
Publication Type
Working Paper
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- LIF-SAFE Working Papers [334]