Does algorithmic trading reduce information acquisition?

Published

Journal Article

© The Author(s) 2018. I demonstrate an important tension between acquiring information and incorporating it into asset prices. As a salient case, I analyze 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.

Full Text

Duke Authors

Cited Authors

  • Weller, BM

Published Date

  • June 1, 2018

Published In

Volume / Issue

  • 31 / 6

Start / End Page

  • 2184 - 2226

Electronic International Standard Serial Number (EISSN)

  • 1465-7368

International Standard Serial Number (ISSN)

  • 0893-9454

Digital Object Identifier (DOI)

  • 10.1093/rfs/hhx137

Citation Source

  • Scopus