Template-Type: ReDIF-Paper 1.0
Title: High-Frequency Trading and Price Informativeness
Author-Name: Jasmin Gider
Author-Email: j.gider@tilburguniversity.edu
Author-Name: Simon N. M. Schmickler
Author-Email: snms@princeton.edu
Author-Name: Christian Westheide
Author-Email: christian.westheide@univie.ac.at

Classification-JEL: G10, G14
Keywords: High-Frequency Trading, Price Efficiency, Information Acquisition, Information Production

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.

Note: 
Length: 70
Creation-Date: 2021-01
Revision-Date: 
File-URL: https://www.crctr224.de/research/discussion-papers/archive/dp257
File-Format: application/pdf
Handle: RePEc:bon:boncrc:CRCTR224_2021_257