Abstract
We examine intraday interactions between high-frequency trading (HFT) and the informational quality of prices to provide evidence on the role of HFT in the price discovery process. HFT and price efficiency display reverse L-shaped patterns with low levels at the open and strong improvement across the trading day. Using the panel vector auto-regression model, we find bi-directional causality between HFT and price efficiency: High-frequency traders react actively to movements in price efficiency, while greater intensity of HFT is associated with more efficient prices. Overall, HFT activities can be considered as efficient ways to incorporate information quickly and accurately into prices.
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