Affiliation:
1. Department of Economics Sungkyunkwan University Seoul Republic of Korea
2. McIntire School of Commerce University of Virginia Charlottesville Virginia USA
3. SKKU Global Finance Research Center Sungkyunkwan University Seoul Republic of Korea
Abstract
AbstractThis study examines whether the composition of market participants contributes to shaping market liquidity around central bank announcements. By analyzing transaction‐level data from a stock index futures market, we find that the roles of foreign and domestic institutional investors in taking or providing liquidity, respectively, are switched following the news announcements. The participation of domestic (foreign) institutions is negatively (positively) associated with liquidity provision shortly after the announcements, whereas they provide (consume) liquidity in general. The change in domestic institutions' roles is attributed to their advantages in processing local news as it is pronounced when they actively participate. Domestic individuals remain largely noisy and unresponsive. Overall, the results support the existence of adverse selection costs in the order‐driven context and imply that institutional investors may trade with the wind when they have information superiority.
Subject
Economics and Econometrics,Finance,General Business, Management and Accounting,Accounting
Cited by
4 articles.
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