Intraday disposition effect of day traders and its relationship with investment performance: evidence from the KOSPI 200 futures market

ABSTRACT

This paper investigates the intraday disposition effect of day traders and its relationship with investment performance. Using a unique data set from the KOSPI 200 futures market, we find that day traders are reluctant to close losing day trades and that this behaviour has a negative relationship with investment performance. In most cases, the disposition effect is mitigated as the closing of the trading day approaches. However, successful day traders show that the disposition effect in the afternoon is slightly greater than that in the morning, which indicates a lower possibility of compulsory loss realization as the market closes. Our findings imply that the investment performance of day traders is positively related to minimizing the realization of compulsory loss near market closures.

KEYWORDS:

• Disposition effect
• intraday disposition effect
• stop loss
• day trader

JEL CLASSIFICATION:

• G11
• G15
• G41

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

¹ The normal trading hours are from 09:00 to 15:15. On the last trading day of futures, the trading of matured futures contracts ends at 14:50. The contract months of index futures are March, June, September, and December. The last trading day for each contract month is the second Thursday of the contract month.

² We have provided smoothed intraday seasonality patterns for the disposition effects using kernel regression in Figure 1. We confirm that the tendency for individual day traders to sell a higher proportion of winners than losers is mitigated as the closing of the trading day nears.

Additional information

Funding

This work was supported by the Hansung University.