High-frequency trading and price informativeness

Jasmin Gider, Simon Schmickler and Christian Westheide

No 248, SAFE Working Paper Series from Leibniz Institute for Financial Research SAFE

Abstract: We study how stock price informativeness changes with the presence of highfrequency 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 ows 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 ow, reducing incentives to acquire fundamental information.

Keywords: High-Frequency Trading; Price Efficiency; Information Acquisition; Information Production (search for similar items in EconPapers)
JEL-codes: G10 G14 (search for similar items in EconPapers)
Date: 2019, Revised 2019
New Economics Papers: this item is included in nep-mst
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:safewp:248

DOI: 10.2139/ssrn.3349653

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