This study uses a Vector Autoregressive (VAR) model to examine interdependencies among institutional investors, big individual investors, and small individual investors, and the effects of their trading on stock returns on the Taiwan Stock Exchange (TSE). The results imply that, during the sample period, big individual investors are the most well informed players; their trading affects not only stock returns but also small individual investors. Small individual investors are not well informed and are slow learners. Their orders to trade tend to provide liquidity to institutional and big individual investors, but there is no compensation for their liquidity services. We find that institutional investors follow neither positive-feedback nor negative-feedback trading strategies. Overall, the responses to shocks, except for those of small individual investors, decay quickly, indicating that the TSE can absorb shocks quickly and efficiently. Our analysis implies that small individual investors would be better off institutionalizing their investment decisions (e.g., by investing in mutual funds).

We propose a multiperiod deposit insurance pricing model that simultaneously incorporates the capital standard and the possibility of forbearance. The model employs the recently developed GARCH option pricing technique in determining the deposit insurance value. Our model offers two distinctive advantages. First, it explicitly considers the implications of the strict enforcement on capital standard as stipulated in FDIC Improvement Act of 1991. Second, the use of the GARCH model allows us to capture many robust features exhibited by financial asset returns. By the GARCH option pricing theory, the value of a contingent claim is a function of the asset risk premium. This unique feature is found to be prominent in determining the bank's deposit insurance value. We also examine the effects of capital forbearance and moral hazard behavior in this multiperiod deposit insurance setting.