High-frequency trading and stock price crash risk around the world

Posted: 23 Sep 2022

See all articles by Emmanouil G. Pyrgiotakis

Emmanouil G. Pyrgiotakis

University of Essex - Essex Business School

Thanos Verousis

University of Essex

Mengyu Zhang

University of Kent, Kent Business School

Date Written: September 15, 2022

Abstract

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

Pyrgiotakis, Emmanouil G. and Verousis, Thanos and Zhang, Mengyu, High-frequency trading and stock price crash risk around the world (September 15, 2022). Available at SSRN: https://ssrn.com/abstract=4219777

Emmanouil G. Pyrgiotakis (Contact Author)

University of Essex - Essex Business School ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

Thanos Verousis

University of Essex ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

Mengyu Zhang

University of Kent, Kent Business School ( email )

CT2 7NP
United Kingdom

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