Algorithmic Trading and Firm Value
51 Pages Posted: 5 Apr 2014 Last revised: 16 Aug 2019
Date Written: August 13, 2019
Using data from 2002 to 2013, we examine the impact of algorithmic trading on firm value. The results show that algorithmic trading generates net benefits for firm value through impacting stock liquidity, idiosyncratic volatility, and idiosyncratic skewness, and firms benefit more from algorithmic trading when algorithmic trading intensity is higher. Using the advent of auto quotation on the New York Stock Exchange as an exogenous shock to algorithmic trading, we find evidence of a causal effect of algorithmic trading on firm value through channels of stock liquidity, idiosyncratic volatility, and idiosyncratic skewness. The positive effects of algorithmic trading on firm value are stronger for firms with higher stock liquidity, for larger firms, and in the post-2007 period when algorithmic trading intensity is higher.
Keywords: Algorithmic trading; Stock liquidity; Firm value
JEL Classification: G12, G14, G32
Suggested Citation: Suggested Citation