Whose trades contribute more to price discovery? Evidence from the Taiwan stock exchange

This research explores whose trades contribute to price discovery in the Taiwan Stock Exchange. We estimate the information share (IS) on a stock-trader-direction basis. Our empirical results present several new findings as follows. Institutional investors exhibit higher IS per order and contribute to price discovery more significantly than do individuals, no matter what measures or which trade directions. While overall price aggressiveness negatively impacts IS, price aggressiveness by professional investors (i.e., foreign investors and domestic investment trusts) has a positive influence on IS. Although the impact of trade size on IS is on average significantly positive, the marginal effects for professional investors are smaller than for individuals. Institutional investors’ herding behavior significantly deteriorates IS. Moreover, trading in less liquid stocks contributes more to IS than trading under other stock characteristics. Foreign investors contribute to price discovery of cross-listed firms more significantly than domestic investors do. Lastly, substantive conclusions remain valid for various robustness checks.