Does high-frequency trading cause stock prices to deviate from fundamental values?

Jung, Michael and Kwon, Kyung Yoon and Park, Hyungshin (2023) Does high-frequency trading cause stock prices to deviate from fundamental values? Accounting and Business Research. ISSN 0001-4788 (https://doi.org/10.1080/00014788.2023.2258787)

Text. Filename: Jung-etal-ABR-2023-Does-high-frequency-trading-cause-stock-prices-to-deviate-from-fundamental-values.pdf Accepted Author Manuscript Restricted to Repository staff only until 23 May 2025. License: Download (1MB) | Request a copy

Abstract

We examine whether high-frequency trading (HFT) is associated with greater deviations of stock prices from firms’ fundamental, intrinsic values. Prior studies show that HFT can improve market liquidity and price discovery in the short-term, but countervailing effects can discourage new information acquisition, reduce the amount of fundamental news reflected in stock prices, and reduce institutional investors’ desire to invest and trade in stocks subject to high levels of HFT. We find that greater HFT leads to a greater deviation of stock prices from accounting-based valuation estimates. The results hold across univariate, multivariate, and cross-sectional tests, as well as a natural experiment that induces an exogenous shock to HFT for a small sample of firms. Our findings contribute to the understanding of the longer-term valuation implications of HFT, as well as the traditional valuation role of accounting variables.

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• Item metadata

  Item type:	Article
  ID code:	87264
  Dates:	Date Event 23 November 2023 Published 23 November 2023 Published Online 8 September 2023 Accepted
  Notes:	Copyright © 2023 Taylor & Francis. This is an Accepted Manuscript of an article published by Taylor & Francis in Accounting and Business Research on 23/11/2023, available at: http://www.tandfonline.com/10.1080/00014788.2023.2258787.
  Subjects:	Social Sciences > Finance
  Department:	Strathclyde Business School > Accounting and Finance
  Depositing user:	Pure Administrator
  Date deposited:	09 Nov 2023 14:00
  Last modified:	26 Apr 2024 12:01
  URI:	https://strathprints.strath.ac.uk/id/eprint/87264