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Why and how do foreign institutional investors outperform domestic investors in futures trading: Evidence from Taiwan

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  • Yi‐Wei Chuang
  • Yu‐Fen Lin
  • Pei‐Shih Weng

Abstract

A unique data set containing all transactions from the Taiwan Futures Exchange allows us to dissect the long‐lasting outperformance of foreign institutional investors in this emerging market. We show that foreign institutional investors comprehensively outperform domestic investors in trade directions, submission types, trading counterparties, order sizes, and order aggressiveness. Although submitting passive orders increases the trading profits of each investor group significantly, particularly for foreign institutions, the most passive domestic trades still lose to the most aggressive foreign institutional trades. We suggest that information advantage plays a more important role than order submission strategy in foreign institutional investors’ superior performance.

Suggested Citation

  • Yi‐Wei Chuang & Yu‐Fen Lin & Pei‐Shih Weng, 2019. "Why and how do foreign institutional investors outperform domestic investors in futures trading: Evidence from Taiwan," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 39(3), pages 279-301, March.
    • Handle: RePEc:wly:jfutmk:v:39:y:2019:i:3:p:279-301
    DOI: 10.1002/fut.21975
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    References listed on IDEAS

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