Description
The presented paper examines whether informed traders consume or provide liquidity around central bank communications. Using a highly-informative transaction-level dataset from the stock index futures market, we construct a natural experiment setup where distinct groups of investors exist, and news is released simultaneously. Our difference-in-differences analysis reveals that the roles of institutional investors are switched following the news announcements. The participation of domestic (foreign) institutions is negatively (positively) associated with liquidity shortly after the announcements, whereas they are liquidity providers (consumers) in general. Similar analyses around consumer price index announcements suggest that domestic institutions trade with the wind when they have superiority over foreign institutions regarding the news. Our overall results support the adverse selection cost theory where informed traders’ participation and liquidity are positively associated.2022 Korean Economic Association 70th Anniversary International Conference is mainly hosted by the Korean Economic Association and co-hosted by Korea University, Korea-America Economic Association, Korea Development Institute, and Korea Institute of International Economic Policy. The on-site conference was located at Korea University (Seoul, Republic of Korea).
| Period | 18 Jun 2022 |
|---|---|
| Event title | 2022 Korean Economic Association 70th Anniversary International Conference |
| Event type | Conference |
| Location | Seoul, Korea, Republic ofShow on map |