Commonality in trading activity and futures‐cash basis: Evidence from the Taiwan futures and stock markets

This study examines commonality in trading activity by various types of institutional investors across futures and stock markets, and the dynamic relationship between the common factors in trading activity and the futures-cash basis. The empirical results provide evidence of commonality in trading activity by various types of institutional investors across futures and stock markets. Additionally, this paper finds that the first principal component of trading activity is most closely related to the futures trading of mutual funds. Moreover, the empirical results indicate that the first principal component of trading activity and mutual funds’ futures trading Granger-cause the futures-cash basis and vice versa. Finally, the results of the impulse response functions show that the first principal component of trading activity as well as mutual funds’ futures trading have a greater impact on the futures-cash basis than other common factors and other investor types.