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Institutional high frequency trading and price discovery: Evidence from an emerging commodity futures market

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  • Yue Zhao
  • Difang Wan

Abstract

We compare the effects of institutional and individual trading on intraday price processes in the emerging commodity futures market of China with a unique trade‐by‐trade dataset. Institutional investors collectively facilitate price discovery with positive permanent price impacts, but their beneficial role is time agglomerated, that is, only institutional highly‐concentrated trades executed at the same millisecond are accompanied by information effects. Transitory price disturbances are mitigated by informed institutional highly‐concentrated trading in the agricultural sector, whereas these disturbances are alleviated by liquidity‐enhancing individual trading in the industrial sector. Overall, the entire market is abnormally dominated by transitory volatility instead of informational volatility.

Suggested Citation

  • Yue Zhao & Difang Wan, 2018. "Institutional high frequency trading and price discovery: Evidence from an emerging commodity futures market," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 38(2), pages 243-270, February.
    • Handle: RePEc:wly:jfutmk:v:38:y:2018:i:2:p:243-270
    DOI: 10.1002/fut.21888
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    3. John Hua Fan & Tingxi Zhang, 2020. "The untold story of commodity futures in China," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 40(4), pages 671-706, April.

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