TY - JOUR
T1 - The price discovery role of day traders in futures market
T2 - Evidence from different types of day traders
AU - Fung, Scott
AU - Tsai, Shih Chuan
N1 - Funding Information:
We thank the editor, Rossen I. Valkanov, the associate editor, and an anonymous referee for their valuable suggestions and comments. We thank numerous colleagues, particularly Yibing Du, Khaled Obaid, and participants at the 2019 Financial Management Association Annual Meeting, the Department of Accounting and Finance Research Workshops, and Library University Hour Lectures at California State University, East Bay. Fung gratefully acknowledges the support of the Jack and Susan Acosta Professorship at California State University, East Bay. Tsai is grateful to the Ministry of Science and Technology of Taiwan for funding this study [grant number: MOST-106-2410-H-003-012].
Funding Information:
We thank the editor, Rossen I. Valkanov, the associate editor, and an anonymous referee for their valuable suggestions and comments. We thank numerous colleagues, particularly Yibing Du, Khaled Obaid, and participants at the 2019 Financial Management Association Annual Meeting, the Department of Accounting and Finance Research Workshops, and Library University Hour Lectures at California State University, East Bay. Fung gratefully acknowledges the support of the Jack and Susan Acosta Professorship at California State University, East Bay. Tsai is grateful to the Ministry of Science and Technology of Taiwan for funding this study [grant number: MOST-106-2410-H-003-012 ].
Publisher Copyright:
© 2021 The Authors
PY - 2021/12
Y1 - 2021/12
N2 - Using proprietary account-level transaction data in the futures market where day traders are self-declared ex ante, this study investigates whether day traders enhance price discovery at the market level. From a natural classification of day traders, we find that heterogeneous day traders have differential effects on price discovery. Self-declared day traders, who benefit from low margin requirement, do not improve price discovery measured by information share. In contrast, non-declared traders, who are not self-declared as day traders, improve price discovery. Their positive impacts on price discovery are particularly significant during periods of high volatility and arrival of new information. Overall, a margin stimulating policy may encourage more day trading, but may also attract overconfident investors, especially inexperienced ones, and who do not enhance price discovery.
AB - Using proprietary account-level transaction data in the futures market where day traders are self-declared ex ante, this study investigates whether day traders enhance price discovery at the market level. From a natural classification of day traders, we find that heterogeneous day traders have differential effects on price discovery. Self-declared day traders, who benefit from low margin requirement, do not improve price discovery measured by information share. In contrast, non-declared traders, who are not self-declared as day traders, improve price discovery. Their positive impacts on price discovery are particularly significant during periods of high volatility and arrival of new information. Overall, a margin stimulating policy may encourage more day trading, but may also attract overconfident investors, especially inexperienced ones, and who do not enhance price discovery.
KW - Day trading
KW - Futures market
KW - Information share
KW - Margin trading
KW - Price discovery
UR - http://www.scopus.com/inward/record.url?scp=85113684323&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=85113684323&partnerID=8YFLogxK
U2 - 10.1016/j.jempfin.2021.08.001
DO - 10.1016/j.jempfin.2021.08.001
M3 - Article
AN - SCOPUS:85113684323
SN - 0927-5398
VL - 64
SP - 53
EP - 77
JO - Journal of Empirical Finance
JF - Journal of Empirical Finance
ER -