On average, the research finds, high-frequency trading \u201cleads to higher cost of capital\u201d for companies.<\/p>\n
The researchers note HFT reduces the cost of capital for the most liquid stocks by lowering the premium on liquidity. However, it raises the cost of capital for less-liquid, \u201clow-beta\u201d stocks by amplifying systemic risk.<\/p>\n
For these less-liquid stocks, the correlated trading strategies used by high-frequency traders cause them to track the overall market more closely, resulting in markets that are more fragile and susceptible to events such as \u201cflash crashes.\u201d This increased systemic risk boosts the cost of capital.<\/p>\n
Overall, this effect outweighs the benefit of HFT for highly liquid stocks, the research found.<\/p>\n
\u201cOur findings hold broad implications for practice, policymaking and regulation,\u201d the paper says.<\/p>\n
\u201cSpecifically, our results suggest that the benefits and costs of HFT are not uniformly distributed across stocks, providing potential justification for exploring stock characteristics-dependent access to fast trading infrastructure from a risk-based regulatory perspective,\u201d it said.<\/p>\n
\u201cAs HFT appears to reduce the cost of capital for the most liquid stocks while increasing it for low-beta stocks, a more nuanced approach to HFT regulation, one that considers stock characteristics, may be warranted,\u201d it suggested.<\/p>\n","protected":false},"excerpt":{"rendered":"On average, the research finds, high-frequency trading \u201cleads to higher cost of capital\u201d for companies. The researchers note…\n","protected":false},"author":2,"featured_media":92685,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[175],"tags":[79,18,19,17,188],"class_list":{"0":"post-92684","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-markets","8":"tag-business","9":"tag-eire","10":"tag-ie","11":"tag-ireland","12":"tag-markets"},"share_on_mastodon":{"url":"","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/posts\/92684","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/comments?post=92684"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/posts\/92684\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/media\/92685"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/media?parent=92684"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/categories?post=92684"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/tags?post=92684"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}