IDEAS home Printed from https://ideas.repec.org/a/taf/acctbr/v54y2024i5p580-613.html
   My bibliography  Save this article

Does high-frequency trading cause stock prices to deviate from fundamental values?

Author

Listed:
  • Michael Jung
  • Kyung Yoon Kwon
  • Hyungshin Park

Abstract

We examine whether high-frequency trading (HFT) is associated with greater deviations of stock prices from firms’ fundamental, intrinsic values. Prior studies show that HFT can improve market liquidity and price discovery in the short-term, but countervailing effects can discourage new information acquisition, reduce the amount of fundamental news reflected in stock prices, and reduce institutional investors’ desire to invest and trade in stocks subject to high levels of HFT. We find that greater HFT leads to a greater deviation of stock prices from accounting-based valuation estimates. The results hold across univariate, multivariate, and cross-sectional tests, as well as a natural experiment that induces an exogenous shock to HFT for a small sample of firms. Our findings contribute to the understanding of the longer-term valuation implications of HFT, as well as the traditional valuation role of accounting variables.

Suggested Citation

  • Michael Jung & Kyung Yoon Kwon & Hyungshin Park, 2024. "Does high-frequency trading cause stock prices to deviate from fundamental values?," Accounting and Business Research, Taylor & Francis Journals, vol. 54(5), pages 580-613, July.
    • Handle: RePEc:taf:acctbr:v:54:y:2024:i:5:p:580-613
    DOI: 10.1080/00014788.2023.2258787
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/00014788.2023.2258787
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/00014788.2023.2258787?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:acctbr:v:54:y:2024:i:5:p:580-613. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/RABR20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.