Does High-Frequency Trading Affect Stock Market Predictability?

Abstract: In this paper, it is investigated whether High-Frequency Trading has an impact on the stock market predictability or not, using nine different Autoregressive moving average models forecasts are generated. Thenceforth, ordinary least squares are used to regress the variance of the forecasting errors with High-Frequency Trading as an explanatory variable in order to see if it has any form of impact. It was found that in four out of nine cases, High-Frequency trading had a significant impact on how adequately the stock market was predicted. Thus, the interpretation of the results is that High-Frequency Trading has a predictive ability and does affect the accuracy of forecasting.