Short-selling with a short wait: Trade- and account-level analyses in Korean stock market

•Day trading short-selling is pervasive, accounting for 42% of total shorted shares in Korea.•Individual day traders in general make positive profits from short-selling even when transaction costs are considered.•Traders who short stocks in the morning and hold the position longer, and those who short stocks with high intraday volatility earn higher profit.•Day traders make profits by executing numerous trades to exploit short-term small price fluctuations.•Day trading short-sellers show the superior performance compare to day trading long-sellers.

We examine the day trading short-selling trades, which are initiated and closed on the same day. Using the proprietary dataset, which covers the comprehensive trading records at the trade- as well as account-level in Korean stock market, we show that the day trading short-selling is pervasive, accounting for 42% of total shorted shares, and that the individual day traders in general make positive profits from short-selling even when transaction costs are considered. We further investigate the timing of short-selling and the covering transactions and find that traders who short stocks in the morning and hold the position longer, and those who short stocks with high intraday volatility earn higher profit. In addition, we find that day traders make profits by executing numerous trades to exploit short-term small price fluctuations. Lastly, we compare the profitability of day trading short-selling with that of day trading long-selling and show that the former shows the superior performance to the latter.