Who pays the liquidity cost? Central bank announcements and adverse selection
研究央行公告前后股指期货市场中国内外机构投资者流动性提供角色的变化，发现国内机构因本地信息优势在公告后减少流动性供给，支持逆向选择成本的存在。
Abstract This study examines whether the composition of market participants contributes to shaping market liquidity around central bank announcements. By analyzing transaction‐level data from a stock index futures market, we find that the roles of foreign and domestic institutional investors in taking or providing liquidity, respectively, are switched following the news announcements. The participation of domestic (foreign) institutions is negatively (positively) associated with liquidity provision shortly after the announcements, whereas they provide (consume) liquidity in general. The change in domestic institutions' roles is attributed to their advantages in processing local news as it is pronounced when they actively participate. Domestic individuals remain largely noisy and unresponsive. Overall, the results support the existence of adverse selection costs in the order‐driven context and imply that institutional investors may trade with the wind when they have information superiority.