Impact of Opening up of the Taiwan Futures Market to Foreign Investors: Price Effects of Foreign Investment Liberalization: Empirical Analysis
MIN HSIEN CHIANG
National Cheng Kung University
Ling Tung College
Journal of Financial Management and Analysis, Vol. 17, No. 2, 2004
This paper investigates the impact of the opening up of the Taiwan futures market to foreign investors on the price discovery function and volatility of the local futures market. The additional market factor effects are controlled and the asymmetric response behavior is studied. Major results are as follows. First, the evidence suggests that foreign investment liberalization increases the number of informed traders and leads to improve the price discovery function of the Taiwan futures market. Second, the level of futures price volatility increases and the asymmetric responses of volatility to news have reduced following futures markets liberalization. These results imply that increased participation of informed foreign investors in emerging futures market should enhance the rate of information flow, improve the quality and reliability of information and, hence, reduce the impact of noise traders on price volatility. Our findings provide important information to policymakers considering opening up their markets to foreign investors.
Keywords: Liberalization, Emerging Futures Market, Foreign Investors, Price Volatility
JEL Classification: F21, F29, G15, N15Accepted Paper Series
Date posted: April 26, 2005
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