Institutional high frequency trading and price discovery: Evidence from an emerging commodity futures market

摘要

We compare the effects of institutional and individual trading on intraday price processes in the emerging commodity futures market of China with a unique trade-by-trade dataset. Institutional investors collectively facilitate price discovery with positive permanent price impacts, but their beneficial role is time agglomerated, that is, only institutional highly-concentrated trades executed at the same millisecond are accompanied by information effects. Transitory price disturbances are mitigated by informed institutional highly-concentrated trading in the agricultural sector, whereas these disturbances are alleviated by liquidity-enhancing individual trading in the industrial sector. Overall, the entire market is abnormally dominated by transitory volatility instead of informational volatility.