Contracts for Dummies? The Performance of Investors in Contracts for Difference

Lee, Adrian D.; Choy, Shan

doi:10.2139/ssrn.2004758

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Contracts for Dummies? The Performance of Investors in Contracts for Difference

Accounting & Finance, Forthcoming

42 Pages Posted: 15 Feb 2012 Last revised: 20 Mar 2013

See all articles by Adrian D. Lee

Adrian D. Lee

Deakin University - Department of Finance (Property and Real Estate)

Shan Choy

University of Technology Sydney (UTS)

Date Written: March 19, 2013

Abstract

Investors widely use contracts for difference (CFDs) to leverage and short sell underlying financial assets. We investigate the after cost performance of investors in Australian Securities Exchange listed share CFDs, and find that market order CFD trades earn small positive returns at the daily horizon, with negative returns reported for one month to one year horizons due to financing costs. Market orders also net sell positions, which suggests that investors use CFDs for shorting opportunities. Overall, we find that liquidity demanders in CFDs obtain favourable execution, which is inconsistent with the view that CFDs are used by naive individuals.

Keywords: contracts for difference, CFDs, individual investors, trading costs

JEL Classification: G14

Suggested Citation: Suggested Citation

Lee, Adrian D. and Choy, Shan, Contracts for Dummies? The Performance of Investors in Contracts for Difference (March 19, 2013). Accounting & Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2004758 or http://dx.doi.org/10.2139/ssrn.2004758