Do foreign institutions outperform in the Taiwan options market?

William T. Lin, Shih Chuan Tsai, Peter Chiu

Research output: Contribution to journalArticle

3 Citations (Scopus)

Abstract

This paper investigates comparative information advantage for foreign and domestic institutions on Taiwan's index options by examining the intraday information content of limit orders placed by foreign and domestic institutions, respectively. The height and length of limit order book provided by either foreign or domestic institutions exhibit predictive power on subsequent price changes in options, especially for put options. The information advantage is more significant for foreign institutions with respect to both call and put options. On the other hand, the results are mixed when order imbalance is used as the proxy of information on limit order book. Foreign institutions outperform domestic institutions for put options, not call options. Order imbalance, ignoring differential aggressiveness of limit orders, fails to capture comparative information advantage for foreign institutions. The superior information advantage for foreign institutions persists during the financial tsunami of 2008-2009 and periods of substantial price changes.

Original languageEnglish
Pages (from-to)101-115
Number of pages15
JournalNorth American Journal of Economics and Finance
Volume35
DOIs
Publication statusPublished - 2016 Jan 1

Fingerprint

Options markets
Taiwan
Information advantage
Put option
Limit orders
Call option
Order imbalance
Price changes
Limit order book
Predictive power
Information content
Index options
Tsunami

Keywords

  • Institutional investor
  • Limit order book
  • Option price
  • Order imbalance

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

Cite this

Do foreign institutions outperform in the Taiwan options market? / Lin, William T.; Tsai, Shih Chuan; Chiu, Peter.

In: North American Journal of Economics and Finance, Vol. 35, 01.01.2016, p. 101-115.

Research output: Contribution to journalArticle

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