High-frequency traders (HFTs) are market participants that are characterised by the high speed with which they react to incoming news, the low inventory on their books, and the large number of trades they execute. All this is possible for HFTs because they use automated, algorithmic trading, which enables them to analyse markets and execute trades in under a millisecond. The high-frequency trading industry grew rapidly after it took off in the mid-2000s. Today, high-frequency trading represents about 50% of trading volume in US equity markets. In European equity markets, its share is estimated to be between 24% and 43% of trading volume, and about 58% to 76% of orders.
Maybe by "HFT" you only mean "those evil hedge funds that are pushing companies to chase next quarters' earnings", but there's nothing fundamentally wrong with high frequency trading. Market making[1] is high frequency trading, and basically involves offering to both buy and sell and given stock, and pocketing the spread. That increases liquidity, making it easier for other traders to buy/sell stock without taking a huge loss. It's unclear why you'd want to ban this, or how you'd distinguish this from whatever evil HFT you actually want to ban.
Liquidity is "real world value". Being able to buy/sell a stock instantly without a massive premium/discount makes stock ownership for the average person possible. Contrast this to an liquid market, like buying houses, where you need to spend months house hunting, and pay a 6% commission on top.
Conclusions and policy implications
To return to our initial question: does stock market liquidity deteriorate when HFTs compete? The results suggest that competition among HFTs increases speculative high-frequency trades, which could lead to a deterioration in market liquidity.
Honest question, why do so many companies strive to go public?
I remember many years ago telling a senior executive that I had concerns that some of the steps we were taking to boost current quarter financials would negatively impact business performance in the long term. He just chuckled and said, "there's no such thing as the long term, only a never ending series of current quarters".
I don’t disagree with what you said though, simply sharing thoughts - I think it leads to markets being more sensitive to macro strategies rather than actual fundamentals
Such investments are typically market cap weighted, which means their effect on stock prices are neutral. Moreover there's still room for hedge funds (and other sophisticated) investors to engage in price discovery.
Wouldn't that be insider trading? You can't short your own company before announcing bad things to make money from it.