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The Impact of Introduction of QFIIs Trading on the Lead and Volatility Behavior: Evidence for Taiwan Index Futures Market

Author

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  • Wen-Hsiu Kuo

    (Department of Business Administration, National Cheng Kung University, 1, Lingtung Road, Nantun 408, Taichung City, Taiwan, R.O.C.;
    Department of Finance, Ling Tung University, 1, Lingtung Road, Nantun 408, Taichung City, Taiwan, R.O.C.)

  • Shih-Ju Chan

    (Department of Business Administration, Kao Yuan University, 1821,Chung-Shan Rd., Lu-Chu Hsiang, Kaohsiung County 821, Taiwan, R.O.C.)

Abstract

This paper investigates whether the introduction of trading by qualified foreign institutional investors (QFIIs) has impacted the lead and volatility behavior of the futures market when the macroeconomic effects and some major economic events are controlled. First, we detect that some market inefficiency exists in Taiwan index futures market. Second, the evidence shows a strengthening in the lead of index futures over index spot markets following the introduction of trading by QFIIs. Third, we find evidence of an increase in the level of futures market volatility, implying that the quantity of information flowing into the futures market increases following the onset of trading by QFIIs. Finally, the asymmetries do not reduce after the opening up of the futures market to QFIIs. This finding is inconsistent with the view that the introduction of informed foreign investors may improve the reliability and quality of information and mitigate the effect of noise traders on market volatility.

Suggested Citation

  • Wen-Hsiu Kuo & Shih-Ju Chan, 2006. "The Impact of Introduction of QFIIs Trading on the Lead and Volatility Behavior: Evidence for Taiwan Index Futures Market," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 9(01), pages 25-49.
    • Handle: RePEc:wsi:rpbfmp:v:09:y:2006:i:01:n:s021909150600063x
    DOI: 10.1142/S021909150600063X
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    References listed on IDEAS

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    1. Elizabeth Berko & John Clark, 1997. "Foreign investment fluctuations and emerging market stock returns: the case of Mexico," Staff Reports 24, Federal Reserve Bank of New York.
    2. Wang, Jianxin, 2007. "Foreign equity trading and emerging market volatility: Evidence from Indonesia and Thailand," Journal of Development Economics, Elsevier, vol. 84(2), pages 798-811, November.
    3. Mr. Brian J. Aitken, 1996. "Have Institutional Investors Destabilized Emerging Markets?," IMF Working Papers 1996/034, International Monetary Fund.
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    Cited by:

    1. Chaiyuth Padungsaksawasdi & Ali Parhizgari, 2017. "Major Currency ETFs and Their Associated Spot and Futures Rates," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 20(04), pages 1-32, December.

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    More about this item

    Keywords

    Lead-lag; volatility; stock index futures; VECM; GJR-GARCH; switching GJR-GARCH;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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