The impact of foreign institutional traders on price efficiency: Evidence from the Taiwan futures market

Ying Hao, Robin K. Chou, Keng-Yu Ho and Pei-Shih Weng

Pacific-Basin Finance Journal, 2015, vol. 34, issue C, 24-42

Abstract: The literature often suggests that foreign institutional traders in emerging markets play a positive role in the information production process. Using a unique dataset from the Taiwan Futures Exchange (TAIFEX), we directly investigate the association between market price efficiency and foreign institutional trading. We find that despite a significant increase in foreign institution trading on the overall market, the informational efficiency of the market price actually deteriorates. We reconcile this surprising finding by showing that foreign institutional traders are more likely to act as market makers on the TAIFEX by submitting passive limit orders.

Keywords: Foreign institutional trader; Price efficiency; Order aggressiveness (search for similar items in EconPapers)
JEL-codes: G12 G14 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:34:y:2015:i:c:p:24-42

DOI: 10.1016/j.pacfin.2015.05.002

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