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Informed trading and liquidity in the Shanghai Stock Exchange

Wong, Woon K.; Tan, Dijun; Tian, Yixiang

Authors

Woon K. Wong

Dijun Tan

Yixiang Tian



Abstract

Dufour and Engle (J. Finance (2000) 2467) find evidence of increased presence of informed traders when the NYSE markets are most active. No such evidence, however, can be found by Manganelli (J. Financial Markets (2005) 377) for the infrequently traded stocks. This article investigates the issue of informed trading and its relation to liquidity in Shanghai Stock Exchange. Consistent with the hypothesis that information-based trade exists for all stocks, our findings suggest an increased presence of informed trading in both liquid and illiquid stocks when markets are active. Moreover, for the actively traded stocks, our results support the price formation model of Foster and Viswanathan (Rev. Financial Studies (1990) 593) that activities of informed traders deter uninformed investors from trading, thereby reducing market liquidity. Crown Copyright © 2008.

Citation

Wong, W. K., Tan, D., & Tian, Y. (2009). Informed trading and liquidity in the Shanghai Stock Exchange. International Review of Financial Analysis, 18(1-2), 66-73. https://doi.org/10.1016/j.irfa.2008.11.002

Journal Article Type Article
Publication Date Mar 1, 2009
Journal International Review of Financial Analysis
Print ISSN 1057-5219
Publisher Elsevier
Peer Reviewed Not Peer Reviewed
Volume 18
Issue 1-2
Pages 66-73
DOI https://doi.org/10.1016/j.irfa.2008.11.002
Keywords informed trading, liquidity, duration, volume, volatility
Public URL https://uwe-repository.worktribe.com/output/998550
Publisher URL http://dx.doi.org/10.1016/j.irfa.2008.11.002




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