Whose trades contribute more to price discovery? Evidence from the Taiwan stock exchange

Donald Lien and Pi-Hsia Hung ()
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Donald Lien: University of Texas at San Antonio
Pi-Hsia Hung: National Chi Nan University

Review of Quantitative Finance and Accounting, 2023, vol. 61, issue 1, No 7, 213-263

Abstract: Abstract This research explores whose trades contribute to price discovery in the Taiwan Stock Exchange. We estimate the information share (IS) on a stock-trader-direction basis. Our empirical results present several new findings as follows. Institutional investors exhibit higher IS per order and contribute to price discovery more significantly than do individuals, no matter what measures or which trade directions. While overall price aggressiveness negatively impacts IS, price aggressiveness by professional investors (i.e., foreign investors and domestic investment trusts) has a positive influence on IS. Although the impact of trade size on IS is on average significantly positive, the marginal effects for professional investors are smaller than for individuals. Institutional investors’ herding behavior significantly deteriorates IS. Moreover, trading in less liquid stocks contributes more to IS than trading under other stock characteristics. Foreign investors contribute to price discovery of cross-listed firms more significantly than domestic investors do. Lastly, substantive conclusions remain valid for various robustness checks.

Keywords: Information share; Informed trading; Investor types; Market microstructure; Order decisions (search for similar items in EconPapers)
JEL-codes: D02 D82 G14 G41 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s11156-023-01150-7

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