Previous research has shown that the attention constraints of human traders (investors and market makers) has lead to systemic effects on stock prices. The less attention there is on a stock, the less efficient that stock’s price will be to a negative earnings surprise, for example.
When DellaVigna and Pollet (2009) researched this phenomenon they posited that stock prices were less efficient to Friday earnings announcements as investors were distracted by the upcoming weekend. Hirshleifer, Lim and Teoh (2009) drew similar conclusions to earnings announcements on days when many other firms were making their announcements.
In 2015 however, deHaan, Shevlin, and Thornock found that attention to earnings announcements were no lower on Friday’s than on any other days of the week. While deHaan et al. did not explore the reasons for this reversal of the previously documented Friday inattention phenomenon, they mentioned the possibility that the trading technology of the modern markets may be at least partially responsible.
HFT to the Rescue
What Chakrabarty, Moulton and Wang discover (with the help of some Wall Street Horizon data) in their recent paper Attention Effects in a High-Frequency World is that high-frequency traders (HFT) account for a larger fraction of trading on low-attention announcements and more importantly the presence of HFT tempers the previously documented effects of low attention on stock price efficiency.
What does this mean? Well, if you are a CFO or Investor Relations professional and think that you may be able to hide some bad news tomorrow (the busiest day of this earnings season) or this Friday, guess again. HFTs will be there . . . and that’s a good thing!