Description:
High-Frequency Traders (HFTs) are known to facilitate incorporating information into asset prices. Do they utilize aggregate market-wide information or idiosyncratic stock-specific information? In this paper, we exploit novel transaction-level data from the National Stock Exchange (India), a market completely driven by limit orders, to construct a measure of information by order imbalance. We show that HFTs act in accordance to the direction of information -- importantly, magnitude of information is unrelated to HFT trades, only the direction matters. HFTs utilize market-wide and idiosyncratic information almost equally -- even during times of extreme fluctuations