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This article investigates the behaviour of speculative trading activities for the speculative market at the Taiwan stock index futures (TX futures) over the period 1 January 2000 to 31 October 31 2007. By testing the impact of contemporaneous (lagged) speculative trading activities for futures return and conditional volatility, we examine tax and seasonal effects for speculative trading activities. Our empirical results reveal a positive relationship of contemporaneous speculative trading activities for daily futures return and conditional volatility, and a negative relationship of lagged speculative trading activities and conditional return volatility. Furthermore, we incorporate speculation ratio into Glosten, Jagannathan and Runkle-Generalized Autoregressive Conditional Heteroscedastic (GJR-GARCH) model and find asymmetric volatility in conditional return of TX futures. In addition, evidence shows that speculative trading activities significantly increased in the period following the reduction in the rate of transaction tax, and significantly decreased on Monday. Finally, we support seasonal behaviour for speculative trading activities on the TX index futures.
