Using the transaction data of a leading index derivatives market, we find that foreign institutional investors make huge profits while domestic individuals lose almost the same amount. Our empirical findings show that foreign institutional investors' profits cannot be attributed to their overnight information advantage or reward for liquidity provision. Our evidence is consistent with the hypothesis that foreign investors have superior marketwide information about intraday changes in the underlying index.
We thank Bart Frijns (the editor), Young Ho Eom, and Hyo Seob Lee for their insightful comments and constructive suggestions. All remaining errors are ours. This study was financially supported by the Investment Research and Education Center (IREC), the Institute of Finance and Banking, and Seoul National University.
