Intraday Liquidity Provision by Trader Types in a Limit Order Market: Evidence from Taiwan Index Futures

Junmao Chiu, Huimin Chung, George H.K. Wang*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

11 Scopus citations

Abstract

This study examines the dynamic liquidity provision process by institutional and individual traders in the Taiwan index futures market, which is a pure limit order market. The empirical analysis obtains several interesting empirical results. We find that trader type affects liquidity provision in a number of interesting ways. First, although institutional traders use more limit orders than market orders, foreign institution (individual) traders use a relatively higher percentage of market (limit) orders in the early trading session and then switch to more limit (market) orders for the remainder of the day until close to the end of the trading day. Second, net limit order submissions by both institutional and individual traders are positively related to one-period lagged transitory volatility and negatively related to informational volatility. Third, net limit order submissions by institutional traders are positively related to one-period lagged spread. Finally, both the state of limit order book and order size significantly influence all types of traders' strategy on submission of limit order versus market order during the intraday trading session.

Original languageEnglish
Pages (from-to)145-172
Number of pages28
JournalJournal of Futures Markets
Volume34
Issue number2
DOIs
StatePublished - 1 Feb 2014

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