The World Federation of Exchanges Publishes a Research Working Paper on the impact of different investor types on liquidity and price formation 

London, 30 September 2021 – The World Federation of Exchanges (“WFE”), the global industry group for CCPs and exchanges today published a Research Working Paper on the impact of different investor types on liquidity and price formation.

Using timestamped orders and trades data from the Stock Exchange of Thailand (SET), the WFE Research paper studies how different market participants - retail investors, domestic and foreign institutions - influence price formation for different liquidity levels. The paper finds that trading participants in the SET market contribute heterogeneously to price formation, and that liquidity affects the size, but not the relative importance, of their contribution to prices. In particular:

  • Retail investors' trades are associated with the highest information content for both high- and low-liquidity stocks.
  • Foreign investors appear to be the second most important contributors to price formation. Interestingly, the analysis shows that trades between foreign and retail traders are the ones that convey most information, hinting that the interaction between two informed categories is beneficial for price formation.
  • Finally, domestic institutions contribute less to price formation, consistent with them being largely buy-and-hold participants.

Nandini Sukumar, Chief Executive Officer of the WFE, said: “It’s critical to understand how different investor types, especially retail, engage with and contribute to liquidity and price formation in markets today. The WFE is committed to researching and studying the functioning of markets as part of our mandate to contribute to the sum total of knowledge about the vital role that public markets play in the real economy.’’

Pedro Gurrola-Perez, Head of Research at the WFE and one of the authors of the paper said: “Understanding the role that different types of participants play in the price formation process provides useful information as exchanges seek to continuously improve the liquidity of public markets. While different markets will vary in their individual characteristics, this research is a contribution to such understanding and highlights the importance of attracting a healthy mix of participants to the markets”

Please click here to read the paper in full.

About the World Federation of Exchanges (WFE):

Established in 1961, the WFE is the global industry association for exchanges and clearing houses. Headquartered in London, it represents over 250 market infrastructure providers, including standalone CCPs that are not part of exchange groups. Of our members, 35% are in Asia-Pacific, 45% in EMEA and 20% in the Americas. WFE’s 57 member CCPs collectively ensure that risk takers post some $1 trillion (equivalent) of resources to back their positions, in the form of initial margin and default fund requirements. WFE exchanges are home to 47,919 listed companies, and the market capitalisation of these entities is over $109 trillion; around $137 trillion (EOB) in trading annually passes through WFE members (at end 2020).

The WFE is the definitive source for exchange-traded statistics, and publishes over 350 market data indicators. Its free statistics database stretches back more than 40 years, and provides information and insight into developments on global exchanges. The WFE works with standard-setters, policy makers, regulators and government organisations around the world to support and promote the development of fair, transparent, stable and efficient markets. The WFE shares regulatory authorities’ goals of ensuring the safety and soundness of the global financial system.

With extensive experience of developing and enforcing high standards of conduct, the WFE and its members support an orderly, secure, fair and transparent environment for investors; for companies that raise capital; and for all who deal with financial risk. We seek outcomes that maximise the common good, consumer confidence and economic growth. And we engage with policy makers and regulators in an open, collaborative way, reflecting the central, public role that exchanges and CCPs play in a globally integrated financial system.


For more information, please contact:

Charlotte Wilson
Streets Consulting
Email: [email protected]
Phone: +44 20 7959 2235
Twitter: @TheWFE