tThis paper investigates comparative information advantage forforeign and domestic institutions on Taiwan’s index options byexamining the intraday information content of limit orders placedby foreign and domestic institutions, respectively. The height andlength of limit order book provided by either foreign or domesticinstitutions exhibit predictive power on subsequent price changesin options, especially for put options. The information advantageis more significant for foreign institutions with respect to bothcall and put options. On the other hand, the results are mixedwhen order imbalance is used as the proxy of information onlimit order book. Foreign institutions outperform domestic insti-tutions for put options, not call options. Order imbalance, ignoringdifferential aggressiveness of limit orders, fails to capture compar-ative information advantage for foreign institutions. The superiorinformation advantage for foreign institutions persists during thefinancial tsunami of 2008–2009 and periods of substantial pricechanges.
The North American Journal of Economics and Finance 35, p.101–115