Influence of the Open Interest of Foreign Institutional Taifex on Local Proprietary Net Positon
Date Issued
2012
Date
2012
Author(s)
Chou, Wei-Kang
Abstract
Since July 22, 2008, Taiwan Futures Exchange made major 3 corporation OI (open interest) net position (abbreviated Major 3) public, some people made the trading strategies according to these OI net position, especially foreign institute. This study divided into two parts. First, we adapted Taiwan futures index (abbreviated Taifex) and Major 3 daily data to analysis why we used foreign OI net position as an indicator to construct programming trade with time series method when time series are stationary , included unit root test，Granger causality test，impulse response function，variance decomposition. If time series are nonstationary then execute cointegration analysis and error correction model. Taifex and foreign OI net position had two-way feedback relationship according to Granger causality analysis. And Taifex obviously impacted local proprietary OI net position, it indicated they were “follow trend” trading type. In addition, foreign OI net position could adjusted themselves by change of local proprietary OI net position.
The empirical found out if the previous Taifex went up and the previous foreign OI net position also increased, the Taifex could always went up. And if the previous Taifex went down and the previous foreign net OI position increased, foriegn OI net position increased. According to impulse response function analysis, foreign OI net position impacted most seriously by Taifex shocks in the second preriod and then decreased over time periods. Taifex could be impacted by foreign OI net position 1.43%, but local proprietary OI net position only 0.015%. It indicated that foreign OI net position is more important than local proprietary OI net position and Trust OI net position to Taifex.
The second part was that we brought foreign OI net position into original trading strategies. We hoped that this important indicator could filter some ineffective signals to raise strategies performance or reduce downside risk. We could found it certainly raised performace or reduced maximum drawdown, whether daytrade trading or over-night trading type not.
Subjects
open interest
foreign OI net position
unit root test
Granger causality test
vector autoregression
variance decomposition
maximum drawdown
Type
thesis
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