dc.description.abstract | This study contains three essays about trading behavior by different types of traders.
Essay 1 employs a unique data set to examine the total price, liquidity and information effects of large institutional trades versus individual trades on three
futures contracts traded on the Taiwan Futures Exchange. Several interesting results are obtained. We find that, for the entire sample period, most buyer-initiated large
trades have larger permanent price effects than seller-initiated large trades and vice versa for liquidity effects. However, we find that the permanent price effects of large sells are larger than the effects of large purchases in bearish markets, and the reverse
pattern is found for bullish markets. The most important finding is that wedemonstrate the asymmetric patterns between price impacts of large buys and sells
hold for individual traders as well as for institutional traders. This new empirical finding is consistent with the current economic condition hypothesis, which is used to
explain the asymmetry between large buys and sells, and reject the hypothesis based on institutional trading strategies.
Essay 2 investigates the strategic order-splitting behavior and order aggressiveness of different types of traders using a unique dataset on the Taiwan
Futures Exchange. By examining the trades and orders for each and every account, we find that, as compared to domestic institutional traders and individual traders, foreign institutional traders and futures proprietary firms are more likely to split their orders
and it appears that the price adjustments after their trades are permanent. Foreign institutional traders and futures proprietary firms seem to be better informed, with
their orders apparently being split so as to reveal their information on a gradual basis. Furthermore, we find that foreign institutional traders and futures proprietary firms
use fewer market orders, choosing instead to submit aggressive limit orders, possibly due to their desire to make the most of their information advantage.
Essay 3 evaluates the overconfidence and disposition effect hypotheses based on trader’s aggressiveness. Overconfidence hypothesis of Gervais and Odean (2001)
predicts that if investors are overconfident, they trade more aggressively subsequent to their gains. However, the level of traders’ aggressiveness is ignored in previous
literature. With a unique data set from Taiwan Futures Exchange, we propose a quantitative measure of order aggressiveness to capture traders’ aggressiveness and
provide finer distinction and testable implication for overconfidence and disposition effect hypotheses by types of traders. We provide new empirical results showing that
investors with high return of net buy (sell) position will buy (sell) aggressively than investors with low return. The finding is consistent with the overconfidence
hypothesis that traders trade more aggressively subsequent to their trading gains. We also find that investors with high return of net buy (sell) position will sell (buy) more
aggressively than investors with low return, consistent with what would be expected under the disposition effect hypothesis. Finally, the overconfident and disposition
effect behavior exists both in institutional and individual traders, although the effect is
stronger for individual traders.
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