How Do Trading Location and Government Direct Intervention Affect Security Price: Evidence from Taiwan's Oil ETFs

The Taiwan government relaxed the liquidation exemption rule for one oil ETF when this ETF faced delisting in the oil price crisis of 2020 due to COVID-19. However, this event attracted even more investors to purchase this ETF, and such strong demand increased its issue size and premium to become the world’s largest ETF in its category. This research first investigates the information content of opening prices, and then adopts the regression model to examine the return comovements of the oil ETFs on the oil and the Taiwan stock markets. The results support that oil ETF returns are more affected by the Taiwan market than the oil market when the Taiwan market is volatile, and their returns fully reflect oil price information only when both markets are stable. Our findings show that government support of the intervened ETF is directly and strongly associated with its premium in the short run, but the effect disappears when the support policy is not extended. This study finally presents that the intervention event attracted new investors, and these participators were mostly retail investors who regarded the intervened ETF as a gamble substitute, for which they lost heavily in the end. Therefore, if the government plans to support the stock market, then it should limit its intervention to blue-chip stocks.