Does Algorithmic Trading Deter Information Acquisition?

55 Pages Posted: 19 Sep 2015 Last revised: 31 Aug 2018

See all articles by Brian Weller

Brian Weller

Duke University - Department of Economics

Date Written: May 23, 2017

Abstract

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

Weller, Brian, Does Algorithmic Trading Deter Information Acquisition? (May 23, 2017). Available at SSRN: https://ssrn.com/abstract=2662254 or http://dx.doi.org/10.2139/ssrn.2662254

Brian Weller (Contact Author)

Duke University - Department of Economics ( email )

Durham, NC
United States

HOME PAGE: http://sites.google.com/site/brianmweller/

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