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Informed trading and liquidity in the Shanghai Stock Exchange

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  • Wong, Woon K.
  • Tan, Dijun
  • Tian, Yixiang

Abstract

Dufour and Engle (J. Finance (2000) 2467) find evidence of increased presence of informed traders when the NYSE markets are most active. No such evidence, however, can be found by Manganelli (J. Financial Markets (2005) 377) for the infrequently traded stocks. This article investigates the issue of informed trading and its relation to liquidity in Shanghai Stock Exchange. Consistent with the hypothesis that information-based trade exists for all stocks, our findings suggest an increased presence of informed trading in both liquid and illiquid stocks when markets are active. Moreover, for the actively traded stocks, our results support the price formation model of Foster and Viswanathan (Rev. Financial Studies (1990) 593) that activities of informed traders deter uninformed investors from trading, thereby reducing market liquidity.

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Bibliographic Info

Article provided by Elsevier in its journal International Review of Financial Analysis.

Volume (Year): 18 (2009)
Issue (Month): 1-2 (March)
Pages: 66-73

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Handle: RePEc:eee:finana:v:18:y:2009:i:1-2:p:66-73

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Web page: http://www.elsevier.com/locate/inca/620166

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Keywords: Informed trading Liquidity Duration Volume Volatility;

References

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Cited by:
  1. Wongchoti, Udomsak & Wu, Fei & Young, Martin, 2009. "Buy and sell dynamics following high market returns: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 18(1-2), pages 12-20, March.

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