Information, hedging demand, and institutional investors: Evidence from the Taiwan Futures Exchange

Cheng-Yi Chien, Hsiu-Chuan Lee, Shih-Wen Tai and Tzu-Hsiang Liao

Journal of Multinational Financial Management, 2013, vol. 23, issue 5, 394-414

Abstract: This paper examines the effect of hedging demand by various types of institutional investor on subsequent returns and volatility. Using data from the Taiwan Futures Exchange, empirical results indicate that the hedging demand of foreign investors has a significant negative impact on subsequent returns and volatility. In addition, trading strategies based on the extreme hedging demand of foreigners are positively correlated with trading performance. Furthermore, there is evidence to show that returns (volatility) also affect the subsequent hedging demand of foreign investors, suggesting a feedback relation. Finally, the hedging demand of foreign investors has a greater impact on subsequent returns and volatility after global financial turmoil. Accordingly, this paper concludes that foreign investors are informed hedgers in the Taiwan futures market, especially after global financial turmoil.

Keywords: Information; Hedging demand; Institutional investors; Futures market; Global financial turmoil (search for similar items in EconPapers)
JEL-codes: G12 G14 G15 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:mulfin:v:23:y:2013:i:5:p:394-414

DOI: 10.1016/j.mulfin.2013.08.001

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