44 Pages Posted: 15 Apr 2004 Last revised: 24 Feb 2013
Date Written: December 31, 2012
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: 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
By Richard Sias