Informed Futures Trading and Price Discovery: Evidence from Taiwan Futures and Stock Markets

Yi-Tsung Lee, Wei-Shao Wu () and Yun Yang ()

Asia-Pacific Financial Markets, 2013, vol. 20, issue 3, 219-242

Abstract: This article focuses on the information effects between the futures market and its spot market. Intraday data are used to investigate the lead-lag relationships between the returns and trading activity of Taiwan stock index futures and the spot returns. We focus on the transmission direction and the sources of information. Consistent with most previous studies, our results show that other than the contemporaneous relationship predicted by carry-cost theory and efficient market theory, futures returns significantly lead spot returns, which implies that informed trades may occur in the futures market. Using private transaction information, net open buy, as a proxy for futures trading activity and distinguishing different types of futures traders, we find that foreign institutional traders are the major source of informed trades because their trading has predictive power for future movements in both spot and futures prices. Traders in other categories are information laggards. Copyright Springer Science+Business Media New York 2013

Keywords: Foreign institutional traders; Futures markets; Information content; Informed traders; Lead-lag relationship (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (5)

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DOI: 10.1007/s10690-013-9165-4

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