Impact of High-Frequency Traders on Market Efficiency

During a recent analysis of equity market behaviors, a financial analyst at a leading investment firm reviewed the roles that various market participants play within the stock market framework. The analyst categorized these participants into different groups based on their motives and strategies. Market specialists were identified as entities that provide liquidity and stabilize the markets, while institutional investors were noted for their vast trading volumes and influence over pricing dynamics.

However, the analyst is keen to understand the role of high-frequency traders (HFT) in contemporary markets. High-frequency traders utilize advanced algorithms and high-speed data networks to execute orders at extremely rapid speeds. This raises a critical question: Which of the following statements accurately captures the impact of high-frequency traders on market efficiency?