Do Individual Investors Make Money? Evidence from Proprietary Short-Selling Account Data in Korea

53 Pages Posted: 12 Sep 2014 Last revised: 15 Sep 2014

See all articles by Kuan-Hui Lee

Kuan-Hui Lee

Seoul National University Business School

Shu-Feng Wang

National Central University, Department of Finance; Ajou University - Department of Business Administration

Min-Cheol Woo

Korea Exchange (KRX)

Date Written: September 12, 2014

Abstract

We use proprietary trade as well as account-level dataset of short sales to investigate the profitability of individual investors’ short-selling in the Korean stock market from August 1, 2007 to May 31, 2010. An average profit is 26,810 Korean won (roughly USD 24.4) per trade per hour and we also find that about 44% of shorted trades are covered within a day. The profitability of short-selling decreases as the hours-to-cover increases, suggesting that mispricing is corrected quickly. Account-level analysis shows that investors who sell short more firms make higher profits than those who sell short fewer firms. We also find evidence that short-sellers earn persistent positive abnormal returns. Our findings suggest that individual short-sellers who employ short horizon investment have superior information.

Keywords: Short-selling; short cover; individual investor; emerging market; Korean stock market

JEL Classification: G15, N25

Suggested Citation

Lee, Kuan-Hui and Wang, Shu-Feng and Woo, Min-Cheol, Do Individual Investors Make Money? Evidence from Proprietary Short-Selling Account Data in Korea (September 12, 2014). Available at SSRN: https://ssrn.com/abstract=2495302 or http://dx.doi.org/10.2139/ssrn.2495302

Kuan-Hui Lee (Contact Author)

Seoul National University Business School ( email )

703 LG-bldg, Business School,
Seoul National Univ., 1 Kwanak-Ro, Kwanak-Gu
Seoul, 151-916
Korea, Republic of (South Korea)
+82 2 880-6924 (Phone)

HOME PAGE: http://sites.google.com/site/kuanlee70/

Shu-Feng Wang

National Central University, Department of Finance ( email )

No. 300, Jhongda Rd, Jhogli City, Taoyuan, Taiwan,
Jhongli, TY 32001
Taiwan
886-3-4227151 # 66261 (Phone)

Ajou University - Department of Business Administration ( email )

206 Worldcup-ro
Yeongtong-gu
Suwon, 443-749
Korea, Republic of (South Korea)

Min-Cheol Woo

Korea Exchange (KRX) ( email )

Busan
Korea, Republic of (South Korea)

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