Order Splitting Behavior by Different Types of Traders in the Taiwan Index Futures Markets Under Diverse Market Conditions

Abstract

We set out in this study to empirically investigate the intraday pattern of order splitting behavior, along with the impacts of market conditions on the order splitting behavior of different types of traders. Our results indicate an intraday pattern in order splitting trading, which is found to be at its highest during the first hour of the trading day. We also present consistent evidence to show that order splitting behavior varies with market conditions, with a clear increase in such behavior when volume is at a high level, and when returns and volatility are at low levels. These results are particularly evident for foreign institutions and proprietary firms, although less so for domestic institutions and individual traders; this is possibly due to the greater sophistication of foreign institutional and proprietary firm traders, which enables them to dynamically alter their order submission strategies, depending upon the prevailing market conditions. © 2013 Wiley Periodicals, Inc. Jrl Fut Mark 34:883–910, 2014

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

“…Proprietary firms behave as momentum traders and are also better informed than mutual funds. This finding is consistent with the results of Wang () and Chou et al . (), who find similar characteristics for the trading of proprietary firms on the TAIFEX.…”

“…Their results suggest that informed traders are more likely to act as contrarians. Given these findings, and those of previous studies that usually find that institutional investors are informed traders (e.g., Li et al ., ; Wang, ), we contend that institutional traders tend to be contrarians but not momentum traders…”

“…() show that both domestic and foreign institutional traders have a lower tendency to show the disposition effect and have a better trading performance because of their information advantage. Wang () also shows that institutional traders, when compared to individual traders, are more likely to split orders for the purpose of hiding their information when they trade. Both these studies suggest that individual traders are uninformed and institutional traders are informed.…”

“…() and Barber et al . () also report a difference between foreign and domestic institutional investors in the Taiwan stock market, both Wang () and Chou et al . () show that domestic institutional traders and foreign institutional traders behave similarly in their order submissions and order‐splitting.…”

“…They find that foreign institutional traders are less likely to show the disposition effect, and they also show that foreign institutional traders are better informed than other types of traders. Similarly, Wang () studies the order‐splitting of various types of traders, and finds that foreign institutional traders have a high tendency to split their orders, implying that foreign institutional traders are well informed and try to protect their information when they trade. Further, Kuo et al .…”