Algorithmic trading and investment-to-price sensitivity

Aliyev, Nihad, Huseynov, Fariz and Rzayev, Khaladdin (2022) Algorithmic trading and investment-to-price sensitivity. Systemic Risk Centre Discussion Papers (122). Systemic Risk Centre, The London School of Economics and Political Science, London, UK.

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Abstract

Does the increased prevalence of algorithmic trading (AT) produce real economic effects? We find that AT contributes to managerial learning by fostering the production of new information and thereby increases firms' investment-to-price sensitivity. We link AT's impact on the investment-to-price sensitivity to the revelatory price efficiency - extent to which stock prices reveal information for real efficiency. AT-driven investment-to-price sensitivity helps managers make better investment decisions, leading to improved firm performance. While in aggregate AT contributes positively to managerial learning, we also show that there is a subset of AT strategies, namely opportunistic AT that is harmful to managerial learning.

Item Type:	Monograph (Discussion Paper)
Official URL:	https://www.systemicrisk.ac.uk/
Additional Information:	© 2022 The Author(s)
Divisions:	Systemic Risk Centre
Subjects:	H Social Sciences > HC Economic History and Conditions H Social Sciences > HG Finance H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management
JEL classification:	G - Financial Economics > G2 - Financial Institutions and Services > G20 - General G - Financial Economics > G3 - Corporate Finance and Governance > G30 - General
Date Deposited:	17 May 2023 16:27
Last Modified:	15 Sep 2023 23:59
URI:	http://eprints.lse.ac.uk/id/eprint/118844

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