The Impacts of Individual Day Trading Strategies on Market Liquidity and Volatility: Evidence from the Taiwan Index Futures Market

53 Pages Posted: 6 Apr 2013

See all articles by Robin K. Chou

Robin K. Chou

National Chengchi University

George H. K. Wang

George Mason University - Department of Finance

Yun-Yi Wang

Feng Chia University

Date Written: March 6, 2013

Abstract

We investigate the investment strategies of individual day traders in the Taiwan Index Futures market, along with their impact on market liquidity and volatility. Our results indicate a tendency among most individual day traders to behave as irrational contrarian traders. We also present consistent evidence to show that most individual day traders provide market liquidity by reducing the bid-ask spread, temporary price volatility and the temporal price impacts. Our results, which are consistent with the experimental results of Bloomfield et al. (2009), provide no support for the general criticism that day trading destabilizes the market while also exacerbating market volatility.

Keywords: Individuals, Day trading, Foreign institutional trading, Trading strategies, Liquidity, Volatility

JEL Classification: G12, G14

Suggested Citation

Chou, Robin K. and Wang, George H. K. and Wang, Yun-Yi, The Impacts of Individual Day Trading Strategies on Market Liquidity and Volatility: Evidence from the Taiwan Index Futures Market (March 6, 2013). Available at SSRN: https://ssrn.com/abstract=2245607 or http://dx.doi.org/10.2139/ssrn.2245607

Robin K. Chou

National Chengchi University ( email )

No. 64, Chih-Nan Road
Section 2
Wenshan, Taipei, 11623
Taiwan
+886-2-29393091 ext. 81016 (Phone)

George H. K. Wang

George Mason University - Department of Finance ( email )

Fairfax, VA 22030
United States

Yun-Yi Wang (Contact Author)

Feng Chia University ( email )

100 Wenhwa Road, Taichung, Taiwan, ROC.
Taichung
Taiwan

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