Overnight Inventory Strategy of Day-Traders: An Empirical Study from the Korea Stock Exchange

49 Pages Posted: 21 Jul 2015

See all articles by Hye-hyun Park

Hye-hyun Park

Southwestern University of Finance and Economics (SWUFE)

Kyung Suh Park

Korea University - Department of Finance

Date Written: July 8, 2015

Abstract

Using a unique intraday trade and quote data set of the Korea Stock Exchange which includes customized symbols identifying individual accounts for January 2006 to December 2006, we investigate the overnight inventory levels of day-traders to determine the factors that affect their overnight positions and whether they have information on future stock price movements. We find strong evidence that the overnight inventory levels of day-traders co-move within groups, which implies that some information content exists in their overnight positions. More specifically, the overnight inventory levels of foreign day-traders are likely to capture positive future stock movements, supporting the findings in the existing literature that indicate that foreign investors are informed traders. We also find that foreign day-traders tend to hold overnight inventories if the stock price moves upward during a trading day, suggesting that foreign day-traders are momentum traders on a very short investment horizon. In contrast, domestic individual and institutional day-traders tend to maintain their losing day positions, supporting the disposition effect hypothesis. We also find that foreign day-traders consider currency movements in their decisions on overnight positions and benefit from appreciation in the KRW by holding Korean stocks overnight, whereas domestic day-traders do not.

Keywords: Day-traders, Overnight position, Foreign investors, Momentum trading, Disposition effect

JEL Classification: G10, G14, G15

Suggested Citation

Park, Hye-hyun and Park, Kyung Suh, Overnight Inventory Strategy of Day-Traders: An Empirical Study from the Korea Stock Exchange (July 8, 2015). Available at SSRN: https://ssrn.com/abstract=2633397 or http://dx.doi.org/10.2139/ssrn.2633397

Hye-hyun Park (Contact Author)

Southwestern University of Finance and Economics (SWUFE) ( email )

55 Guanghuacun St,
Chengdu, Sichuan 610074
China

Kyung Suh Park

Korea University - Department of Finance ( email )

Seoul, 136-701
United States

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