Does High Frequency Trading Affect Analyst Research Production?

46 Pages Posted: 9 Jul 2020

See all articles by Pawel Bilinski

Pawel Bilinski

City University London - Sir John Cass Business School

Irene Karamanou

University of Cyprus - Department of Public and Business Administration

Anastasia Kopita

University of Warwick - Warwick Business School

Marios A. Panayides

University of Cyprus - Department of Accounting and Finance; University of Pittsburgh - Katz Graduate School of Business

Date Written: June 15, 2020

Abstract

Using the SEC’s Tick Size Pilot experiment, we examine the causal relation between the intensity of trades by high frequency traders (HFTs) and analyst research production. We propose that HFTs pre-empt other investors’ trades, which lowers non-HFTs’ profitability of trades on analyst reports and, as a result, non-HFTs demand for analyst investment advice. Consistently, stocks where a large proportion of trades is HFT driven have (1) fewer profitable trades on analyst reports that non-HFTs can exploit and (2) fewer analyst research reports and lower analyst coverage. The negative effect HFTs have on analyst research production is moderated by institutional investors who demand analyst research for the monitoring purpose. Overall, our results suggest that a consequence of high frequency trading is lower analyst research production.

Keywords: high frequency trading; analyst coverage; earnings forecasts; stock recommendations

JEL Classification: D53; G12; G14; M41

Suggested Citation

Bilinski, Pawel and Karamanou, Irene and Kopita, Anastasia and Panayides, Marios A., Does High Frequency Trading Affect Analyst Research Production? (June 15, 2020). Available at SSRN: https://ssrn.com/abstract=3627459 or http://dx.doi.org/10.2139/ssrn.3627459

Pawel Bilinski (Contact Author)

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Irene Karamanou

University of Cyprus - Department of Public and Business Administration ( email )

1 Panepistimiou Ave.
Nicosia CY-2109
Cyprus
+357 22 893608 (Phone)
+357 22 895475 (Fax)

Anastasia Kopita

University of Warwick - Warwick Business School ( email )

Coventry CV4 7AL
United Kingdom

Marios A. Panayides

University of Cyprus - Department of Accounting and Finance ( email )

University of Cyprus
P.O. Box 20537
Nicosia, CY-1678
Cyprus

University of Pittsburgh - Katz Graduate School of Business ( email )

372 Mervis Hall
Pittsburgh, PA 15260
United States

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