Frequent Trading and Investment Performance: Evidence From the KOSPI 200 Futures Market

• Published date: 01 December 2024
• Author: Doojin Ryu,Robert I. Webb,Jinyoung Yu
• Date: 01 December 2024
• DOI: http://doi.org/10.1002/fut.22552

Journal of Futures Markets

RESEARCH ARTICLE

Frequent Trading and Investment Performance:

Evidence From the KOSPI 200 Futures Market

Doojin Ryu

1

| Robert I. Webb

2

| Jinyoung Yu

3

1

Department of Economics, Sungkyunkwan University, Seoul, Republic of Korea |

2

McIntire School of Commerce, University of Virginia, Charlottesville, VA,

USA |

3

International Business School Suzhou, Xi'an Jiaotong‐Liverpool University, Suzhou, China

Correspondence: Jinyoung Yu (jinyoung.yu@xjtlu.edu.cn)

Received: 6 April 2024 | Revised: 12 June 2024 | Accepted: 18 August 2024

Funding: This paper was supported by SKKU Global Research Platform Research Fund, Sungkyunkwan University, 2024.

Keywords: index futures | investor heterogeneity | trade frequency | trading performance

ABSTRACT

This study explores whether frequent trading is profitable to investors in an emerging stock index futures market. Our analyses,

based on long‐term data from 2010 to 2023, indicate that the effect of trading frequency differs across investor types and market

conditions. Only some domestic institutions gain additional profits from more frequent trading, and such a tendency is apparent

when the futures price falls and when the futures market volatility is low. Foreign investors experience losses as they trade more

when the market is bearish and are frequently net long. The performance of domestic individuals does not depend on their

trading frequency in general; however, they lose more from trading when the market is bearish and when the market is less

volatile.

JEL Classification: G11, G14, G23

1 | Introduction

“To be uninformed is to be slow”(Haldane 2012). The speed of

trading plays a substantial role in determining investors' trading

performance. Foucault, Hombert, and Roşu(2016) suggest that

informed market participants attempt to trade quicker than

other participants to gain profits by speculating on transient

price changes. The intensity of such competition has grown in

recent years with the emergence of algorithmic trading that

targets slower market participants (Chaboud et al. 2014; Serbera

and Paumard 2016). What happens when market participants

trade more frequently?

Previous studies focus on the performance of individual or retail

investors and find that these investors lose more as they trade

more. Typically, Barber and Odean (2000) show that the per-

formance is the poorest for those who trade the most frequently.

They attribute the hazards from trading to individual investors'

overconfidence. Chuang and Susmel (2011) further support this

interpretation by showing that individual investors are indeed

more subject to trading based on overconfidence compared to

institutional investors, and similar findings are suggested in

various emerging markets (Kim, Ryu, and Yu 2021; Ryu, Webb,

and Yu 2022a; Seok, Cho, and Ryu 2024; Yu, Kim, and Ryu

2024). However, cases where individuals gain positive profits

from trading are also reported (Boehmer et al. 2021; Ivković,

Sialm, and Weisbenner 2008; Welch 2022). Grinblatt,

Keloharju, and Linnainmaa (2012) show that individual inves-

tors are heterogenous and that those with higher intelligence

scores are less exposed to behavioral biases and tend to perform

better. Li et al. (2017) report that individual investors' per-

formance varies with their account size. According to their

findings, the investors with relatively larger accounts tend to

earn higher profits, implying that these investors are informed

or less subject to costly behavioral biases. Coval, Hirshleifer,

and Shumway (2021) report the existence of informed individ-

ual investors who consistently make profits in the stock market.

Furthermore, both Nicolosi, Peng, and Zhu (2009) and Seru,

© 2024 Wiley Periodicals LLC.

1911 of 1922Journal of Futures Markets, 2024; 44:1911–1922

https://doi.org/10.1002/fut.22552