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High Frequency Trading and Stock Herding

Author

Listed:
  • Fu, Servanna Mianjun
  • Kellard, Neil
  • Verousis, Thanos
  • Kalaitzoglou, Iordanis

Abstract

Using Trade and Quote (TAQ) data to infer variation in High frequency Trading (HFT) for the US equity markets and HFT start and colocation dates for a sample of 10 international exchanges, we find that increases in HFT activity lead to a significant increase in stock herding. The effect of HFT on herding is more pronounced for large-cap stocks, higher liquidity periods and during more volatile days. HFT activities are strongly associated with non-fundamental herding and encourage information cascades that induce price inefficiencies, suggesting changes to market design might be warranted.

Suggested Citation

  • Fu, Servanna Mianjun & Kellard, Neil & Verousis, Thanos & Kalaitzoglou, Iordanis, 2024. "High Frequency Trading and Stock Herding," Essex Finance Centre Working Papers 37485, University of Essex, Essex Business School.
    • Handle: RePEc:esy:uefcwp:37485
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    File URL: https://repository.essex.ac.uk/37485/
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    Keywords

    High Frequency Trading; HFT; Herding; Colocation; Information cascades; Fundamental information;
    All these keywords.

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