The Impact of Introduction of QFIIs Trading on the Lead and Volatility Behavior: Evidence for Taiwan Index Futures Market

摘要

This paper investigates whether the introduction of trading by qualified foreign institutional investors (QFIIs) has impacted the lead and volatility behavior of the futures market when the macroeconomic effects and some major economic events are controlled. First, we detect that some market inefficiency exists in Taiwan index futures market. Second, the evidence shows a strengthening in the lead of index futures over index spot markets following the introduction of trading by QFIIs. Third, we find evidence of an increase in the level of futures market volatility, implying that the quantity of information flowing into the futures market increases following the onset of trading by QFIIs. Finally, the asymmetries do not reduce after the opening up of the futures market to QFIIs. This finding is inconsistent with the view that the introduction of informed foreign investors may improve the reliability and quality of information and mitigate the effect of noise traders on market volatility.