Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
960859 | Journal of Financial Markets | 2014 | 24 Pages |
•Day trading is an equilibrium feature of trading on the Taiwan Stock Exchange.•We document cross-sectional differences in returns earned by speculative traders.•Few day traders are able to earn positive abnormal returns net of fees.•The spread in returns between top-ranked and bottom-ranked speculators is large.•Variation in investor skill is an important feature of financial markets.
We document economically large cross-sectional differences in the before- and after-fee returns earned by speculative traders by analyzing day traders in Taiwan from 1992 to 2006. We sort day traders based on their returns in year y and analyze their 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) 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. Less than 1% of the day trader population is able to predictably and reliably earn positive abnormal returns net of fees.