Trading Performance on Euronext: Does Location or Trading Venue Matter?
23 Pages Posted: 8 May 2011 Last revised: 12 May 2011
Date Written: May 1, 2011
Abstract
We employ detailed data from all Euronext venues to investigate whether domestic traders outperform other traders. Compared with previous literature [particularly Agarwal, S., Faircloth, S., Liu, C. and Rhee, G.S., 2009, Why Do Foreign Investors Underperform Domestic Investors in Trading Activities? Evidence from Indonesia. Journal of Financial Markets 12, 32-53], the market structure includes four Euronext trading venues with an identical trading system allowing us to classify traders into domestic traders, traders from other Euronext countries familiar with the Euronext system, and foreign traders. Our analysis allows to understand which factor (location or familiarity with trading system) explains trading performance differences across trader categories. We find that domestic traders on average outperform foreign traders but perform not differently from traders from other Euronext countries. This superior performance stems from non-initiated orders both in client trades and proprietary trades. Initiated proprietary trades by domestic members also outperform foreign initiated proprietary trades. We also nd substantial heterogeneity within the three groups of domestic, other Euronext and foreign traders, with smaller traders outperforming larger traders. Finally, a regression analysis shows that our results are robust across different Euronext trading venues and different stocks.
Keywords: Traders' Performance, Local Bias
JEL Classification: G10
Suggested Citation: Suggested Citation
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