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Article: Overconfident Individual Day Traders: Evidence from the Taiwan Futures Market

TitleOverconfident Individual Day Traders: Evidence from the Taiwan Futures Market
Authors
Issue Date2013
PublisherElsevier. The Journal's web site is located at http://www.elsevier.com/locate/jbf
Citation
Journal of Banking and Finance, 2013, v. 37 n. 9, p. 3548-3561 How to Cite?
AbstractA specific day-trading policy in Taiwan futures market allows an investigation of the performance of day traders. Since October 2007, investors who characterize themselves as “day traders” by closing their day-trade positions on the same day enjoy a 50% reduction in the initial margin. Because we can identify day traders ex ante, we have a laboratory to explore trading behavior without the contamination of potential behavioral biases. Our results show that the 3470 individual day traders in the sample incur on average a significant loss of 61,500 (26,700) New Taiwan dollars after (before) transaction costs over October 2007–September 2008. This implies that day traders are not only overconfident about the accuracy of their information but also biased in their interpretations of information. We also find that excessive trading is hazardous only to the overconfident losers, but not to the winners. Last, we provide evidence that more experienced individual investors exhibit more aggressive day trading behavior, although they do not learn their types or gain superior trading skills that could mitigate their losses.
Persistent Identifierhttp://hdl.handle.net/10722/184789
ISI Accession Number ID

 

DC FieldValueLanguage
dc.contributor.authorKuo, WYen_US
dc.contributor.authorLin, TCen_US
dc.date.accessioned2013-07-15T10:09:10Z-
dc.date.available2013-07-15T10:09:10Z-
dc.date.issued2013en_US
dc.identifier.citationJournal of Banking and Finance, 2013, v. 37 n. 9, p. 3548-3561en_US
dc.identifier.urihttp://hdl.handle.net/10722/184789-
dc.description.abstractA specific day-trading policy in Taiwan futures market allows an investigation of the performance of day traders. Since October 2007, investors who characterize themselves as “day traders” by closing their day-trade positions on the same day enjoy a 50% reduction in the initial margin. Because we can identify day traders ex ante, we have a laboratory to explore trading behavior without the contamination of potential behavioral biases. Our results show that the 3470 individual day traders in the sample incur on average a significant loss of 61,500 (26,700) New Taiwan dollars after (before) transaction costs over October 2007–September 2008. This implies that day traders are not only overconfident about the accuracy of their information but also biased in their interpretations of information. We also find that excessive trading is hazardous only to the overconfident losers, but not to the winners. Last, we provide evidence that more experienced individual investors exhibit more aggressive day trading behavior, although they do not learn their types or gain superior trading skills that could mitigate their losses.-
dc.languageengen_US
dc.publisherElsevier. The Journal's web site is located at http://www.elsevier.com/locate/jbf-
dc.relation.ispartofJournal of Banking and Financeen_US
dc.rightsNOTICE: this is the author’s version of a work that was accepted for publication in Journal of Banking and Finance. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Banking and Finance, 2013, v. 37 n. 9, p. 3548-3561. DOI: 10.1016/j.jbankfin.2013.04.036-
dc.rightsCreative Commons: Attribution 3.0 Hong Kong License-
dc.titleOverconfident Individual Day Traders: Evidence from the Taiwan Futures Marketen_US
dc.typeArticleen_US
dc.identifier.emailLin, TC: chunlin@hku.hken_US
dc.identifier.authorityLin, TC=rp01077en_US
dc.description.naturepostprint-
dc.identifier.doi10.1016/j.jbankfin.2013.04.036-
dc.identifier.hkuros216211en_US
dc.identifier.hkuros231198-
dc.identifier.isiWOS:000322428600018-

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