High Frequency Trading and Stock Herding

Servanna Mianjun Fu, Neil Kellard, Thanos Verousis () and Iordanis Kalaitzoglou

Essex Finance Centre Working Papers from University of Essex, Essex Business School

Abstract: Using Trade and Quote (TAQ) data to infer variation in High frequency Trading (HFT) for the US equity markets and HFT start and colocation dates for a sample of 10 international exchanges, we find that increases in HFT activity lead to a significant increase in stock herding. The effect of HFT on herding is more pronounced for large-cap stocks, higher liquidity periods and during more volatile days. HFT activities are strongly associated with non-fundamental herding and encourage information cascades that induce price inefficiencies, suggesting changes to market design might be warranted.

Keywords: High Frequency Trading; HFT; Herding; Colocation; Information cascades; Fundamental information (search for similar items in EconPapers)
Date: 2024-01-03
New Economics Papers: this item is included in nep-fmk, nep-ifn and nep-mst
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