Informed trading and liquidity in the Shanghai Stock Exchange |
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| Authors: | Woon K Wong Dijun Tan Yixiang Tian |
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| Institution: | 1. Investment Management Research Unit, Cardiff Business School, United Kingdom;2. School of Management, University of Electronic Science and Technology, China;1. Department of Materials Science and Engineering, State Key Laboratory of Silicon Materials, Zhejiang University, Hangzhou 310027, China;2. Cyrus Tang Center for Sensor Materials and Applications, Zhejiang University, China;1. Department of Mathematics, Middle East Technical University, 06800 Ankara, Turkey;2. Neuroscience Institute, Georgia State University, Atlanta, GA 30303, USA;1. The University of the West of England, Bristol, UK;2. University of Oviedo, Spain |
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| 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. |
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