Market Return, Liquidity, and Trading Activity of Various Trader Types in the Emerging Market: A Study of the TAIFEX

Abstract

Using a large data set with detailed classifications of different trader types, this study sheds further light on the trading activity of various trader types on the Taiwan futures exchange (TAIFEX). Compared with domestic traders on the TAIFEX, we find that foreign institutional traders act as contrarians. In addition, when the market becomes illiquid, foreign institutional traders are net buyers and individual traders are net sellers. The result implies that both foreign institutional traders and individual traders may contribute to the recovery of liquidity dry-ups together. Among all traders, only the order imbalance of foreign institutional *The suggestions and advice of two anonymous referees are gratefully acknowledged. Ying 499 investors presents return predictability when the market is illiquid, which suggests they have an information advantage in such a market.

Herd behaviors in index futures trading: Driving factors and impact on market volatility

“…When a trade can be classified with a trading direction, the statistics in Table 1 show that the buyer‐initiated trading volume was much greater than the seller‐initiated one, suggesting a stronger tendency to place long positions than short positions among traders on the TAIFEX. The finding is similar to that of Hao et al (2016), who showed a positive aggregated order imbalance (buyer‐initiated trades minus seller‐initiated trades) of the TXF on the TAIFEX in the sample period from 2003 to 2008. Since the data analyzed by Hao et al (2016) could identify different investor types, their results also showed that the TXF order imbalance of retail investors is positive.…”

“…The finding is similar to that of Hao et al (2016), who showed a positive aggregated order imbalance (buyer‐initiated trades minus seller‐initiated trades) of the TXF on the TAIFEX in the sample period from 2003 to 2008. Since the data analyzed by Hao et al (2016) could identify different investor types, their results also showed that the TXF order imbalance of retail investors is positive. As mentioned earlier, since the raw data used in this study consists of the intraday transaction prices of the TXF only, we followed the method of Blasco et al (2012) to define the trading direction using the tick test approach.…”