Does Algorithmic Trading Deter Information Acquisition?
55 Pages Posted: 19 Sep 2015 Last revised: 31 Aug 2018
Date Written: May 23, 2017
Abstract I demonstrate an important tension between acquiring information and incorporating it into asset prices. As a salient case, I analyze the rise of algorithmic trading (AT), which is typically associated with improved price efficiency. Using a new measure of the information content of prices and a comprehensive panel of 54,879 stock-quarters of Securities and Exchange Commission (SEC) market data, I establish instead that the amount of information in prices decreases by 9% to 13% per standard deviation of AT activity and up to a month before scheduled disclosures. AT thus may reduce price informativeness despite its importance for translating available information into prices.
Keywords: Information Acquisition, Price Discovery, Algorithmic Trading, SEC MIDAS
JEL Classification: G10, G12, G14
Suggested Citation: Suggested Citation