I am wondering about implications of the speed of intra-daily trading on the wealth of an long-term investor. I am not necessarily asking about the costs of HFT trading to society but instead I wonder whether intra-daily price fluctuations or, in the extreme case, flash crashes should concern an investor who aims at holding a portfolio for a long time.
I can imagine that the following factors are certainly important:
Direct effect when setting up the portfolio (Costs of liquidity, e.g. Spread, Market Depth, Market impact are directly affected by high-frequency market microstructure)
Increased co-movement due to HFT-Traders: Serving as liquidity bridges between natural buyers and sellers, HFT-Traders may hedge their (market-maker like) positions with correlated assets and therefore may increase correlations in general which has an effect on the optimal portfolio structure (see, for example this excellent book).
Obviously, intra-daily price movements determine the end-of-day price, and therefore the distribution of long-term returns depends on the intra-daily price fluctuations. However, fast price movements followed by recovery such as during the Apple flash crash on BATS is probably nothing, I would care about if I added some stocks to my retirement plan - isn't this myopic and instead we should be worried if flash crashes occur?