This paper investigates the overreaction of Taiwan futures market to the over-night performance of the U.S market using the daily and intraday prices of the fu-tures index and its derivatives from 2005 to 2012, analyzed by one-samples t-test.
Empirical results show that the Taiwan futures markets overreact to overnight performance of the U.S. market. Also, this paper found that the Taiwan futures mar-kets underreact before cash market. To take advantage of these anomalies, the index futures and index options are used in several simulation trading strategies. Excess returns are earned and the Sharpe ratios are employed to see whether the profit is the result of human psychology or simply a compensation of risk. After risk adjustment, the strategies are still profitable in Taiwan.
