Algorithmic trading and investment-to-price sensitivity

Nihad Aliyev, Fariz Huseynov and Khaladdin Rzayev

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Does the increased prevalence of algorithmic trading (AT) produce real economic effects? We find that AT contributes to managerial learning by fostering the production of new information and thereby increases firms' investment-to-price sensitivity. We link AT's impact on the investment-to-price sensitivity to the revelatory price efficiency - extent to which stock prices reveal information for real efficiency. AT-driven investment-to-price sensitivity helps managers make better investment decisions, leading to improved firm performance. While in aggregate AT contributes positively to managerial learning, we also show that there is a subset of AT strategies, namely opportunistic AT that is harmful to managerial learning.

Keywords: algorithmic trading; real effects of algorithmic trading; revelatory price efficiency; investment-to-price sensitivity (search for similar items in EconPapers)
JEL-codes: G20 G30 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2022-09-02
New Economics Papers: this item is included in nep-ain and nep-mst
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