Efficient Prices at Any Cost

Does Algorithmic Trading Deter Information Acquisition?

Brian Matthew Weller

Research output: Working paper

Abstract

I demonstrate a powerful tension between acquiring information and incorporating it into asset prices. As a salient case, I analyze the transformative rise of algorithmic trading (AT), which is typically associated with improved price efficiency. Using a new measure of the relative information content of prices and a comprehensive panel of 31,872 stock-quarters of SEC market data, I establish instead that AT strongly decreases the amount of information in prices. Information losses are concentrated in stocks with high shares of algorithmic liquidity takers, suggesting that aggressive AT powerfully deters information acquisition despite its importance for translating available information into prices.
Original languageEnglish (US)
PublisherSocial Science Research Network (SSRN)
Number of pages69
StatePublished - May 21 2016

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Algorithmic trading
Information acquisition
Costs
Price efficiency
Information content
Asset prices
Liquidity
Market data

Cite this

Weller, B. M. (2016). Efficient Prices at Any Cost: Does Algorithmic Trading Deter Information Acquisition? Social Science Research Network (SSRN).
Weller, Brian Matthew. / Efficient Prices at Any Cost : Does Algorithmic Trading Deter Information Acquisition?. Social Science Research Network (SSRN), 2016.
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Weller, BM 2016 'Efficient Prices at Any Cost: Does Algorithmic Trading Deter Information Acquisition?' Social Science Research Network (SSRN).

Efficient Prices at Any Cost : Does Algorithmic Trading Deter Information Acquisition? / Weller, Brian Matthew.

Social Science Research Network (SSRN), 2016.

Research output: Working paper

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Weller BM. Efficient Prices at Any Cost: Does Algorithmic Trading Deter Information Acquisition? Social Science Research Network (SSRN). 2016 May 21.