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High-frequency trading and price informativeness

Author

Listed:
  • Gider, Jasmin
  • Schmickler, Simon
  • Westheide, Christian

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.

Suggested Citation

  • Gider, Jasmin & Schmickler, Simon & Westheide, Christian, 2019. "High-frequency trading and price informativeness," SAFE Working Paper Series 248, Leibniz Institute for Financial Research SAFE, revised 2019.
    • Handle: RePEc:zbw:safewp:248
    DOI: 10.2139/ssrn.3349653
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    References listed on IDEAS

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    More about this item

    Keywords

    High-Frequency Trading; Price Efficiency; Information Acquisition; Information Production;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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    This paper has been announced in the following NEP Reports:

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