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Do foreign institutions outperform in the Taiwan options market?

Author

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  • Lin, William T.
  • Tsai, Shih-Chuan
  • Chiu, Peter

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.

Suggested Citation

  • Lin, William T. & Tsai, Shih-Chuan & Chiu, Peter, 2016. "Do foreign institutions outperform in the Taiwan options market?," The North American Journal of Economics and Finance, Elsevier, vol. 35(C), pages 101-115.
    • Handle: RePEc:eee:ecofin:v:35:y:2016:i:c:p:101-115
    DOI: 10.1016/j.najef.2015.10.005
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    Cited by:

    1. Lin, William T. & Tsai, Shih-Chuan & Zheng, Zhenlong & Qiao, Shuai, 2018. "Retrieving aggregate information from option volume," International Review of Economics & Finance, Elsevier, vol. 55(C), pages 220-232.
    2. Lin, William T. & Tsai, Shih-Chuan & Zheng, Zhenlong & Qiao, Shuai, 2017. "Does options trading convey information on futures prices?," The North American Journal of Economics and Finance, Elsevier, vol. 39(C), pages 182-196.
    3. Ho, Hwai-Chung & Tsai, Wei-Che, 2020. "Price delay and post-earnings announcement drift anomalies: The role of option-implied betas," The North American Journal of Economics and Finance, Elsevier, vol. 54(C).

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    More about this item

    Keywords

    Institutional investor; Limit order book; Option price; Order imbalance;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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