Short-term trading by individual investors in the Korean stock market

Abstract

We directly examine the trading behaviors of individual investors in a short investment horizon based on unique daily trading data from the Korean stock market. Demand by individual investors increases this week when returns increased last week, implying that individual investors are momentum traders in the short term. Further, demand by individual investors last week is positively related to their demand this week, suggesting that individual investors tend to herd. In addition, demand by individual investors last week is negatively associated with returns this week, indicating unprofitable trading behaviors.

Keywords:

• Individual investors
• trading behaviors
• short-term trading data
• emerging market

JEL Classifications:

• G11
• G12
• G14
• G15

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1. We focus on the trading behaviors of an average individual investor and thus do not consider different groups of individual investors, such as rich and poor investors.

2. The literature also shows that the trading behaviors and performance of individual investors tend to be inferior to those of other groups of investors. See, for example, Nofsinger and Sias (1999), Grinblatt and Keloharju (2000), Barber and Odean (2000), Cohen, Gompers, and Vuolteenaho (2002), Gibson, Safieddine, and Sonti (2004), Amihud and Li (2006), Choi and Sias (2012), and Han and Chung (2013).

3. See, for example, Grinblatt, Titman, and Wermers (1995), Wermers (1999), Nofsinger and Sias (1999), Sias (2004), and Choi and Sias (2009).

4. To ensure the robustness of our results, we re-estimate all Fama–Macbeth regressions using the methodology of Petersen (2009). In unreported results, we find that our main results stay unchanged.

Additional information

Notes on contributors

Chune Young Chung

Chune Young Chung is an assistant professor of Finance at the School of Business Administration, Chung-Ang University in Korea. His main research focuses on corporate governance related to institutional investors. He has published in Journal of Business Finance and Accounting, Applied Economics, and North American Journal of Economics and Finance in the areas of empirical corporate finance and investment.

Kainan Wang

Kainan Wang is an assistant professor of Finance at the College of Business and Innovation, University of Toledo in the USA. His research interests include institutional investors, mutual funds, and conditional asset pricing. He has published articles in Journal of Business and Economic Statistics, Journal of Business Finance and Accounting, and Journal of Empirical Finance.