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Do Individual Day Traders Make Money?

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Do Individual Day Traders Make Money?

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Do Individual Day Traders Make Money?
Evidence from Taiwan
Brad M. Barber
Graduate School of Management
University of California, Davis
Davis, CA 95616
(530) 752-0512
bmbarber@ucdavis.edu
www.gsm.ucdavis.edu/~bmbarber
Yi-Tsung Lee
Department of Accounting
National Chengchi University
Taipei, Taiwan
(886-2) 2939-3091 # 81027
actytl@nccu.edu.tw
Yu-Jane Liu
Department of Finance
National Chengchi University
Taipei, Taiwan
(886-2) 2939-3091 # 81123
finyjl@nccu.edu.tw
Terrance Odean*
Haas School of Business
University of California, Berkeley
Berkeley, CA 94720
(510) 642-6767
odean@haas.berkeley.edu
faculty.haas.berkeley.edu/odean

May 2004

*

We are grateful to the Taiwan Stock Exchange for providing the data used in this study. Michael Bowers provided excellent computing support. Barber appreciates the National Science Council of Taiwan for underwriting a visit to Taipei, where Timothy Lin (Yuanta Core Pacific Securities) and Keh Hsiao Lin (Taiwan Securities) organized excellent overviews of their trading operations.

Do Individual Day Traders Make Money? Evidence from Taiwan

Abstract
When an investor buys and sells the same stock on the same day, he has made a day trade. We analyze the performance of day traders in Taiwan. Day trading by individual investors is prevalent in Taiwan – accounting for over 20 percent of total volume from 1995 through 1999. Individual investors account for over 97 percent of all day trading activity. Day trading is extremely concentrated.

About one percent of individual

investors account for half of day trading and one fourth of total trading by individual investors. Heavy day traders earn gross profits, but their profits are not sufficient to cover transaction costs. Moreover, in the typical six month period, more than eight out of ten day traders lose money. Despite these bleak findings, there is strong evidence of persistent ability for a relatively small group of day traders. Traders...