Information Transmission of International Stock Market and Domestic Futures Market: Evidence from Taiwan Stock Market

Abstract

We construct a model based on market microstructure and examine the information transmission effects of global and domestic impact factors on the Taiwan capitalization weighted stock index (TAIEX). We use the Standard and Poor’s (S&P) 500 closing index and open interest from the Taiwan Futures Exchange (TAIFEX) to represent the global and domestic impact factors, respectively. Examining the trading behavior of foreign and domestic institutions by observing open interest in the futures market reveals the private information of these institutions. The empirical results of our study show that both the lagged S&P 500 closing index and open interests of foreign and domestic institutions significantly affect the TAIEX opening index. In addition, the results indicate that the influence of the global impact factor is more significant than that of the domestic impact factor.