Market Return, Liquidity, and Various Trader Type

What is it about?

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 investors presents return predictability when the market is illiquid, which suggests they have an information advantage in such a market.

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