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
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: Suggested Citation