So, there's a correlation between HFT and volatility. Yup.
Causation is hard though.
"Trading volumes in U.S. equities are around 6 billion shares a day, roughly where they were in 2006. Volatility, a measure of the extent to which a share’s price jumps around, is about half what it was a few years ago. By seeking out price disparities across assets and exchanges, speed traders ensure that when things do get out of whack, they’re quickly brought back into harmony."
There's been academic research that HFT market making dampens intraday volatility [1]
There have also been findings in the other direction [2].
I suspect to the extent you're talking about market making, the first version is true, but you almost never see it in articles like this. Maybe it makes for poor sensationalism.
Causation is hard though.
"Trading volumes in U.S. equities are around 6 billion shares a day, roughly where they were in 2006. Volatility, a measure of the extent to which a share’s price jumps around, is about half what it was a few years ago. By seeking out price disparities across assets and exchanges, speed traders ensure that when things do get out of whack, they’re quickly brought back into harmony."
There's been academic research that HFT market making dampens intraday volatility [1]
There have also been findings in the other direction [2].
I suspect to the extent you're talking about market making, the first version is true, but you almost never see it in articles like this. Maybe it makes for poor sensationalism.
[1] http://www.wsuc3m.com/HFT_and_Volatility_Final%20Brogaard.pd...
[2] http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1691679