High-frequency trading and stock price crash risk around the world
Posted: 23 Sep 2022
Date Written: September 15, 2022
In this study, we examine the impact of high-frequency trading (HFT) on stock price crash risk in 24 countries over the period 1990 to 2019. Using a difference-in-differences approach, we find that HFT participation significantly increases stock price crash risk. We attribute this finding to the decrease in earnings quality and the increase in noise trading following the HFT presence. Furthermore, we observe that the countries’ institutional characteristics could mediate this relationship. More precisely, the impact of HFT on crash risk is less severe in less corrupted countries with more effective governments, in countries with better accounting standards, and in countries with higher press freedom. Finally, our results hold even when we control for the countries’ culture or religion.
Keywords: crash risk, collocation, high-frequency trading, earning management
JEL Classification: G14, G15
Suggested Citation: Suggested Citation