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

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  • Wei-Kuang Chen

    (National Chengchi University
    National Chengchi University)

  • Ching-Ting Lin

    (National Chengchi University)

  • Cheng-Yi Shiu

    (National Central University)

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.

Suggested Citation

  • Wei-Kuang Chen & Ching-Ting Lin & Cheng-Yi Shiu, 2019. "Price discovery and price leadership of various investor types: evidence from Taiwan futures markets," Review of Quantitative Finance and Accounting, Springer, vol. 53(2), pages 601-631, August.
    • Handle: RePEc:kap:rqfnac:v:53:y:2019:i:2:d:10.1007_s11156-018-0760-3
    DOI: 10.1007/s11156-018-0760-3
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    3. Lien, Donald & Shrestha, Keshab & Lee, Lianne Mei Quin, 2022. "Analytical properties of Hasbrouck and generalized information shares," Finance Research Letters, Elsevier, vol. 49(C).
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    5. Shrestha, Keshab & Naysary, Babak & Philip, Sheena Sara Suresh, 2023. "Price discovery in carbon exchange traded fund markets," International Review of Financial Analysis, Elsevier, vol. 89(C).
    6. Lien, Donald, 2022. "Comparisons of Alternative Information Share Measures," Finance Research Letters, Elsevier, vol. 50(C).

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    More about this item

    Keywords

    Price discovery; Price leadership; Herding; Foreigners; Information role;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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