Investors' trading behavior and performance: Online versus non-online equity trading in Korea

This paper investigates the trading behavior and performance of online equity investors in comparison to non-online equity investors in Korea. While online trading has become more prevalent in financial markets, the role of online investors and their impact on prices has attracted little empirical scrutiny. We study the trading activity of foreign investors, local institutions and individual traders between 2001 and 2005 and compare their performance based on whether or not trading is performed online. Our main finding is that in aggregate, online investors perform poorly in comparison to non-online investors. Between investor-types, foreigners show the best returns, followed by local institutions. Individual investors provide liquidity to other investor-types, particularly when trading online. On balance, the main implication of our findings is that the disadvantage suffered by individual investors is mainly explained by their online trades.