Does Buy-and-Hold Pay Off in Structured Products? An Analysis of Account-Level Transactions

50 Pages Posted: 1 Aug 2014

See all articles by Youngsoo Choi

Youngsoo Choi

Hankuk University of Foreign Studies

Woojin Kim

Seoul National University - Business School

Eunji Kwon

Hankuk University of Foreign Studies

Date Written: July 31, 2014

Abstract

This paper documents that median holding period in structured products based on market index is less than a day from initial purchase to liquidation even for retail investors. Less than 6% of all series ever traded by retail investors are held until maturity. More importantly, buy-and-hold strategies perform worse than frequent trading. Based on a unique proprietary dataset that provides the details of all transactions - including account identifier and direction of the trade - in the Korean ELW (equity linked warrant) market between 2009 and 2011, we find that both HFT (high frequency trader) accounts and non-HFT accounts perform worse when either average holding period is long or average end-of-the-day position is large. Such failure of buy-and-hold strategy likely reflects time decaying properties, i.e. theta, of option-like products. Our findings suggest that measuring expected returns for options simply assuming that they are held until maturity may underestimate the true expected return.

Keywords: Option, ELW (Equity Linked Warrant), HFT (High Frequency Trader), Korea

JEL Classification: G13, G23

Suggested Citation

Choi, Youngsoo and Kim, Woojin and Kwon, Eunji, Does Buy-and-Hold Pay Off in Structured Products? An Analysis of Account-Level Transactions (July 31, 2014). Available at SSRN: https://ssrn.com/abstract=2474547

Youngsoo Choi

Hankuk University of Foreign Studies ( email )

Department of Mathematics
Mohyeon-myon, Yongin-shi
Kyunki-do 449
Korea

Woojin Kim (Contact Author)

Seoul National University - Business School ( email )

1 Gwanak-ro, Gwanak-gu
Seoul, 08826
Korea, Republic of (South Korea)
82-2-880-5831 (Phone)

HOME PAGE: http://cba.snu.ac.kr/en/faculty?mode=view&memberidx=60582&major=6

Eunji Kwon

Hankuk University of Foreign Studies ( email )

270 Imun-dong Dongdaemun-gu
Seoul, 130-791
Korea, Republic of (South Korea)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
42
Abstract Views
330
PlumX Metrics