Investor Contributions to Price Discovery and Trading Performance: Evidence from the Taiwan Stock Exchange

This study examines the relationship between price discovery and trading performance across different investor types in Taiwan’s active order-driven market. Using five-second intraday data, we construct a stock-trader-direction information share (IS) measure and link it to trading performance. Our results reveal several key findings: institutional investors have a higher IS per order, reflecting greater contributions to price discovery, and they outperform individual investors in trading performance. While higher IS is associated with better contemporaneous outcomes, it does not predict long-term performance. Determinants of price discovery include investor type, price aggressiveness, trade size, herding behavior, firm characteristics, and macroeconomic conditions. Robustness tests, covering one-minute IS, high-volatility periods, earnings announcements, and macroeconomic influences, support these conclusions.