Price discovery and price leadership of various investor types: evidence from Taiwan futures markets

Wei-Kuang Chen, Ching-Ting Lin () and Cheng-Yi Shiu
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Wei-Kuang Chen: National Chengchi University
Ching-Ting Lin: National Chengchi University
Cheng-Yi Shiu: National Central University

Review of Quantitative Finance and Accounting, 2019, vol. 53, issue 2, No 10, 631 pages

Abstract: Abstract Using a unique dataset composed of comprehensive transaction data from Taiwan futures markets, we are able to unambiguously classify all investors into individuals, domestic institutions, and foreigners, and examine the price discovery and price leadership for these three groups. We find that, despite the relatively low trading volume of futures contracts by foreigners, such trades make a significant contribution to price discovery, particularly on the market index futures. Moreover, intraday analysis shows that foreigners’ correlated trades can positively predict concurrent and future price movements of futures contracts. After controlling for the momentum effect, the finding is robust that foreigners exhibit superior return predictability than domestic institutions and individuals. The empirical result indicates that foreigners have an information advantage in Taiwan futures markets. In contrast to foreigners, individuals make the least contribution to price discovery and their correlated trades negatively predict the following price movements, suggesting that individuals have an information disadvantage.

Keywords: Price discovery; Price leadership; Herding; Foreigners; Information role (search for similar items in EconPapers)
JEL-codes: G12 G14 G20 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (6)

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DOI: 10.1007/s11156-018-0760-3

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