The Effect of Algorithmic Trading on Voluntary Disclosure

55 Pages Posted: 30 May 2019

See all articles by Andrew Stephan

Andrew Stephan

University of Colorado at Boulder Leeds School of Business

Date Written: September 8, 2016

Abstract

I investigate whether algorithmic trading (AT) affects voluntary disclosure. I predict that AT’s advantage over non-algorithmic investors decreases information acquisition. Because investors are less informed, managers increase disclosure to reduce information asymmetry. I find evidence consistent with these predictions; AT is positively associated with the likelihood and quantity of management guidance issued. Further, when AT is high, informed trading is more costly, information acquisition is lower, and investors are less informed prior to management disclosures. This question is important to academics, regulators, and the investing public due to the debate over the desirability of AT in capital markets.

Keywords: Algorithmic trading; high frequency trading; voluntary disclosure; management forecasts

JEL Classification: G14, G19, G10

Suggested Citation

Stephan, Andrew, The Effect of Algorithmic Trading on Voluntary Disclosure (September 8, 2016). Available at SSRN: https://ssrn.com/abstract=2836558 or http://dx.doi.org/10.2139/ssrn.2836558

Andrew Stephan (Contact Author)

University of Colorado at Boulder Leeds School of Business ( email )

419 UCB
Boulder, CO 80309-0419
United States

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