• The Policy Performance of NFSF and Slippage in Futures Markets

Abstract

This study investigates the intervention policy effectiveness by the National Financial Stabilization Fund (NFSF) on Taiwan Stock Exchange Capitalization Weighted Index (TAIEX) Futures, using unique intraday NFSF trading data. The policy objectives of NFSF are providing liquidity and signaling positive information. We use futures slippage, which is similar to market-impact costs in stock markets, to evaluating the policy objectives of NFSF. Slippage can be decomposed to liquidity effect and information effect. We find that NFSF’s single trades provide liquidity and earn liquidity premium in the sample period. NFSF’s single trades also contain information. However, only NFSF’s sales trade packages provide liquidity. In addition, NFSF’s trade packages contain no information. Finally, the liquidity ffect and information effect of NFSF’s trades are not necessarily positively related to trade size.

Keywords: National Financial Stabilization Fund, TAIEX Futures, slippage, block trading