Download this Paper Open PDF in Browser

The Cross-Section of Speculator Skill: Evidence from Day Trading

44 Pages Posted: 15 Apr 2004 Last revised: 24 Feb 2013

Brad M. Barber

University of California, Davis

Yi-Tsung Lee

Peking University - Guanghua School of Management

Yu-Jane Liu

National Chengchi University (NCCU) - Department of Finance and Banking

Terrance Odean

University of California, Berkeley - Haas School of Business

Date Written: December 31, 2012

Abstract

We document economically large cross-sectional differences in the before- and after-fee returns earned by speculative traders. We establish this result by focusing on day traders in Taiwan from 1992 to 2006. We argue that these traders are almost certainly speculative traders given their short holding period. We sort day traders based on their returns in year y and analyze their subsequent day trading performance in year y 1; the 500 top-ranked day traders go on to earn daily before-fee (after-fee) returns of 61.3 (37.9) basis points (bps) per day; bottom-ranked day traders go on to earn daily before-fee (after-fee) returns of -11.5 (-28.9) bps per day. The spread in returns between top-ranked and bottom-ranked speculators exceeds 70 bps per day. However, less than 1% of the total population of day traders is able to predictably and reliably earn positive abnormal returns net of fees. Our results contribute to the evidence that cross-sectional variation in investor skill is an important feature of financial markets.

Keywords: day traders, individual investors, market efficiency

JEL Classification: G12, G14

Suggested Citation

Barber, Brad M. and Lee, Yi-Tsung and Liu, Yu-Jane and Odean, Terrance, The Cross-Section of Speculator Skill: Evidence from Day Trading (December 31, 2012). Available at SSRN: https://ssrn.com/abstract=529063 or http://dx.doi.org/10.2139/ssrn.529063

Brad Barber (Contact Author)

University of California, Davis ( email )

Graduate School of Management
One Shields Avenue
Davis, CA 95616
United States
530-752-0512 (Phone)
530-752-2924 (Fax)

Yi-Tsung Lee

Peking University - Guanghua School of Management ( email )

Office 336, Guanghua Building 2
Beijing, Beijing 100871
China
(86-10) 6275 5742 (Phone)
(86-10) 6275 5742 (Fax)

Yu-Jane Liu

National Chengchi University (NCCU) - Department of Finance and Banking ( email )

64, Chih-nan Rd., Sec. 2, Mucha,
Taipei, 116
Taiwan ROC
(882)-2-2939-3091 ext. 81123 (Phone)

Terrance Odean

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States
510-642-6767 (Phone)
510-666-2561 (Fax)

HOME PAGE: http://www.haas.berkeley.edu/faculty/odean.html

Paper statistics

Downloads
2,874
Rank
3,101
Abstract Views
23,649