OVERVIEW
In this study, we investigate whether changes in HFT activities before, during, and after the Fed chair’s announcement of FOMC meeting results depend on the uncertainty surrounding changes in the Fed’s monetary policies. Specifically, we examine whether HFT activities in these periods align with liquidity-supplying or liquidity-demanding behavior and whether uncertainty about Fed rate changes influences high-frequency traders’ strategies and their liquidity-providing or liquidity-demanding activities. Our study contributes to the existing HFT literature by demonstrating that HFTs’ liquidity-providing versus liquidity-demanding behavior around an event can vary depending on the relative benefits and costs of acting as a market maker versus adopting aggressive trading strategies.
Financial Reporting Alternatives for Stock Repurchases and Their Effects on Stock Repurchase Decisions
Corporations repurchase shares to manage capital structure, enhance earnings per share, and signal financial strength. However, the sensitivity of repurchase activity to earnings may depend on the chosen accounting treatment. Under the treasury stock method, repurchases reduce retained earnings, making firms more mindful of earnings when deciding on buybacks. In contrast, the retirement method permanently removes shares without directly affecting retained earnings, potentially making repurchase decisions less sensitive to earnings. We argue that firms using the treasury method exhibit greater earnings sensitivity in their repurchase behavior than those using the retirement method. This research contributes to the literature by linking accounting choices to managerial decision- making and informs standard setters, investors, and policymakers about the financial implications of repurchase accounting treatment.
Kelly Ha
We explore how repurchase sensitivity to earnings varies by accounting treatment. We investigate if accounting choices shape managerial repurchase decisions. We consider the financial implications of accounting methods for repurchases.
TAKEAWAYS
While HFT is generally known to enhance market quality through liquidity-providing market-making activities during normal times, some practitioners have criticized it for exacerbating market volatility during extreme events. The Fed chair’s announcements of FOMC meeting results have had a significant impact on the market in recent years due to drastic changes in the Fed rate. Since the overall impact of HFT on the U.S. equity market remains debatable, FOMC announcements provide an ideal setting to examine the pros and cons of HFT activities during a scheduled normal event, as the costs (e.g., increased price volatility and reduced liquidity) may outweigh the benefits (e.g., improved price discovery).
Hyungshin Park
Coles Research Magazine | Summer Research Fellowships
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