An Empirical Analysis of the Dynamic Probability of Informed Institutional Trading: Evidence from the Taiwan Futures Exchange

Based upon a unique dataset of institutional transactions in the Taiwan index futures market, we analyze the informational role of institutional investors using the “dynamic probability of informed trading” (DPIN). Compared to “trading imbalances” (TIB) and the “volume‐synchronized probability of in...

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Bibliographic Details
Published in:The journal of futures markets 2017-09, Vol.37 (9), p.865-891
Main Authors: Weng, Pei‐Shih, Wu, Ming‐Hung, Chen, Miao‐Ling, Tsai, Wei‐Che
Format: Article
Language:English
Subjects:
Futures exchanges
Futures market
Institutional investments
International finance
Stock offerings
Trading
Transactions
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Summary:Based upon a unique dataset of institutional transactions in the Taiwan index futures market, we analyze the informational role of institutional investors using the “dynamic probability of informed trading” (DPIN). Compared to “trading imbalances” (TIB) and the “volume‐synchronized probability of informed trading” (VPIN), we show that the DPIN of foreign institutional investors outperforms the alternative measures and provides more stable effects in measuring informed trading. Following the strategies highlighted by DPIN, foreign institutional investors also perform better than domestic institutional investors. Our results support the validity of DPIN and present that foreign institutional investors are more informed. © 2016 Wiley Periodicals, Inc. Jrl Fut Mark 37:865–891, 2017
ISSN:0270-7314
1096-9934
DOI:10.1002/fut.21830