Algorithmic Trading and How it Affects What Directors Learn from Stock Prices

Algorithmic trading (AT) is one of the most notable financial innovations in several decades and constitutes a substantial portion of recent trading in stock markets. However, evidence on the economic consequences of AT is mixed. On one hand, prior research finds that AT expedites the incorporation of public information into stock prices, especially around earnings announcements. On the other hand, studies document that AT reduces price informativeness, thus adversely influencing the extent to which managers learn from stock prices when making investment decisions. In our paper, we examine how AT affects the extent to which directors on corporate boards … Read more