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1 UNDESTANDING ONLINE TADES: TADING AND EFOMANCE IN COMMON STOCK INVESTMENT Y. C. George L, Y. C. Elea Kag 2 ad Chug-L Chu 3 Deparme of Accoug ad Iformao Techology, Naoal Chug Cheg Uversy, Tawa,.O.C acycl@ccu.edu.w; 2 kagyuch@gmal.com; 3 oleesf@gmal.com Absrac Ths paper aalyzed he effec of ole radg o vesors radg behavor based o vesors radg daa provded by a maor secury frm Tawa. Our emprcal fdgs are summarzed as follows:. Male ad he youger raders preferred ole radg. Ivesors who had beer gross reur ed o swchg o ole radg mechasm. 2. Eve hough vesors raded more acvely afer gog ole, her rade performace s o egavely affeced. 3. Ole radg does o sgfcaly crease formao-rggered rades (speculave radg), eve hough here s more access o formao afer gog ole. 4. Fally, he order execuo effcecy of ole radg s beer ha phoe-based radg. Keywords : ole radg, rade performace Iroduco Ole radg has orgally prospered Amerca, especally wh Amerrade beg he poeer ad more ad more secures compaes volved hs marke. ror o he ole radg pheomeo, he US secures marke was prmarly domaed by suoal vesors. Wh rapd echology growh ad wdespread adopo alog wh he compeve lower rasaco fees aggressvely promoed by ole radg brokerage frms, may realer vesors have show remedous eres he ole radg marke. As a resul, ole vesors have wessed he growg red of ole radg owards he masream. The ole radg marke Tawa has wessed s dramac growh erms of overall radg volume sce he adopo of ole radg 997. I rece years, few researchers suppor he vew ha overcofdece of formao caused by ole radg leads o formao-based radg ad poor vesme performace. I has become a worhwhle research opc o dscuss he effec of such a ole radg plaform he coex of radg behavor ad performace, specfcally wh aggressve promoo of compeve rasaco fees ad dvdualsm by leadg ole radg secures frms. Ole radg plaform s capable of provdg exesve real-me marke daa ad aalyss o a large umber of ole raders. Accordg o he vesgao held by leadg US vesme web ses Moley Fool (998) ad The Sydcae (998), approxmaely 70% ervewees dcaed ha research o he web was he prmary chael o oba marke daa ad formao for decso makg. However, formao overload whou professoal aalyss may corbue o rsky decso makg process for cera vesors (Barber ad Odea 2002). The prmary source of he research daa s from a maor Tawaese secures frm regardg s ole radg acves from Jauary 2004 hrough Ocober Ths research s eded o vesgae he behavor of ole raders he followg areas:. Wha characerscs would lead raders o perform ole radg? 2. Wha mpac would ole radg make o he ole radg behavor ad performace of he raders? 3. Wha effec would ole radg have o formao-rggered rades (speculave radg), provded ha here s more access o marke daa ad formao? 4. Wha mpac does ole radg have o rasaco effcecy of ole vesors? Mehodology The prmary daa sources for hs research are exaced from he raday ad he compay s prce formao from a maor Tawaese secures frm o he vesme from Jauary 2004 hrough Ocober I addo, he weekly rasaco volume for each commo sock ad rae of reur emaae from Tawa Ecoomc Joural (TEJ). To aalyze he weekly behavor sock radg afer gog ole, hs research assumes ha all vesors deal wh rade he las day of he week ad gorg he raweek rade. We seleced,247 samples as he frs me ole raders ad seleced,247 comparso samples of o-ole raders. The research mehods are saed as follows: A. Descrpve Sasc The 9h Ieraoal Coferece o Elecroc Busess, Macau, November 30 - December 4, 2009

2 266 By dvdg he oal samples o ole ad oole groups, hs research aalyzes vesors arbues of becomg he ole raders hrough descrpve sascs. B. The effec of ole radg o oal urover rae The oal urover rae s calculaed o he weekly bass o cofrm vesors persoal behavor Tawa Sock Exchage. Also we calculae he urover rae by summarzg marke capalzao of purchase ad sale (half) dvded by weekly balace of marke capalzao. The same mehods saed above are used o calculae he oal urover rae of comparave samples (before ad afer gog ole). C. The effec of ole radg o formao rggered radg Ivesors ca oba he laes vesme formao from Iere; herefore, may secures frms provde free web formao o arac vesors. Barber ad Odea (2002) hk overcofde vesors wll overesmae he value of her prvae formao obaed from Iere, causg hem o rade oo acvely. I hs research, we compare he rade reaco before ad afer gog ole. We measure speculave radg by oal urover raes. Uder he crcumsace of hgher oal urover rae, vesors rade more acvely due o he mpac of obag marke rade formao from Iere. D. The effec of ole radg o vesme performace I s very mpora o dscuss vesme performace of ole radg. I hs research, we measure vesme performace by examg rskadused excess reur. The relaed calculao mehods ad defos are as follows: () Gross reur The gross weekly reur s calculaed as W () = = W = Where s he gross weekly gross reur of sock commo sock week, s he gross reur of commo sock week, ad W s sock marke prce commo sock poso dv ded by ( sock marke prce commo sock poso) Y. C. George L, Y. C. Elea Kag, Chug-L Chu (2) Calculae rsk-adused reur Ths research uses Famma-Frech 3 facor CAM o calculae bechmark rsk-adused reur o measurg performace. esmae parameer of β s ad h by 3 facor CAM as ( M ) F + ssmb + h HML εt r = β + (2) r :reur for sock week M :weekly rae of reur of TAIEX F :rsk-free rae by usg year cerfcae depos rae SMB : reur of porfolo week for small Co. mus reur of porfolo week for bg Co. HML :reur of hgh book-o-marke rao porfolo week for small Co. mus reur of hgh book-o-marke porfolo week for bg Co. β :rsk parameer for marke s :rsk parameer for compay sze h :rsk parameer for book-o-marke equy rao 2 By usg he parameer from 3 facor CAM o esmae he bechmark reur ( Bechmark ) for vesme accou Bechmark where Bechmark = = W [ ( M F ) + s SMB + h HML ] β (3) = W :bechmark rsk-adus reur for accou commo sock week W :Wegh of marke capalzao for accou commo sock week o vesme porfolo [ β ( M FM ) + s SMB + h HML ] :bechmark rskadus reur for sock week 3 Calculae excess marke reur( E ) The 9h Ieraoal Coferece o Elecroc Busess, Macau, November 30 - December 4, 2009

3 Tradg ad erfromace Commo Sock Ivesme 267 E = (4) Bechmark E. The effec of formao- rggered rade (speculave radg) o performace before ad afer gog ole The effec of rade formao rggered speculag radg o performace before ad afer gog ole s calculaed as where w = = = w * r (5) :purchase before gog ole, he orgal reur rae of porfolo for rade formao rggered radg week 2 before week where k B, :purchase execuo prce rade k of commo sock k, S : sale execuo prce rade k of commo sock k, H : he hghes execuo prce rade k of commo sock raday k, L he lowes execuo prce k rade of commo sock raday esuls A. Descrpve Sascs I Table I, we llusrae descrpve formao o he radg formao based o our sample. Male ole raders are 56.6%, ad male o-ole raders are 49%. The mea ad meda ages for he ole vesor are 39 ad 37 respecvely. The urover rae for he ole raders s hgher ha o-ole raders. The average volume for each rasaco ole s lower ha o-ole. w = sock buyg marke prce buyg quay ( scok buyg marke prce buyg quay) r : purchase before gog ole, he reur rae of sock for rade formao rggered radg week2 before week We wll use he same mehod saed above o calculae (SB :sales before gog ole)ad SB A SA ( A:urchase Afer gog ole ) ad ( SA:Sales Afer gog ole. ( SB E E ) < A SA ( E E ) meas vesors wll buy beer performg socks ad sell poor performg socks because hey ca ge more vesme formao such as red aalyss from ole radg. F. The effec of ole radg o vesors order execuo effcecy B. The effec of ole radg o oal urover rae I Table II we oule he chage of urover rae before ad afer rasferrg o ole accou based o our sample. The aual urover rae has rse o 69.8% for ole raders. Afer rasferrg o ole, he rae chages from orgal.3 ( 40.0% ad 50.9%, p<0.000)mes o.5 mes(69.8% ad 47%, p<0.00). The order execuo effcecy s calculaed as Effcecy of purchase prce: k, H k, B (6) k, H k, L Effcecy of sale prce: k, S k, L (7) k, H k, L The 9h Ieraoal Coferece o Elecroc Busess, Macau, November 30 - December 4, 2009

4 268 Y. C. George L, Y. C. Elea Kag, Chug-L Chu parameer for book-o-marke ) as rsk-adused reur. The reur raes for ole ad o-ole before ad afer rasferrg accou are show Table IV. C. The effec of ole radg o rade formao rggered radg From Table III, he aual ur over rae for ole raders before rasferrg s 50.2%. I comes o %, decreases o 29.9% (p<0.000), dffere from expeced. E. The effec of formao-rggered radg (speculave radg) o performace before ad afer gog ole The e excess reur for sales before ole ( SB E E ) s ( p<0.000 ). The e excess reur for sales afer ole ( A SA E E )s ( p<0.000 ). Boh of hem are egave, whch meas ole raders are o able o acheve beer reur o vesme hough here s more access o formao afer gog ole. D. The effec of ole radg o vesme performace Ths research measures vesme performace by lookg o gross reur ad rsk-adused reur. Ths research employs hree-facor model(fama ad Frech ) o calculae α (cosa for excess reur) β (parameer for marke rsk) s ( parameer for compay scale ) ad h ( rsk F. The effec of ole radg o vesor s order execuo effcecy I Table V, he effcecy of purchase prce s by Iere, ad by phoe. The dfferece s The 9h Ieraoal Coferece o Elecroc Busess, Macau, November 30 - December 4, 2009

5 Tradg ad erfromace Commo Sock Ivesme (p<0.000). The effcecy of sale prce s by Iere, ad by phoe. The dfferece s 0.059(p<0.000). Tha meas he order execuo effcecy of ole radg s beer ha phoe-based radg. Coclusos The prevous sudes have focused o he effec of vesors urover rae ad performace o ole radg. However, few sudes have bee doe o he effec of order execuo effcecy o ole radg. Ths research furher dscusses he effec of order execuo effcecy sce provdes valuable formao for vesors for selecg radg mehods a mely maer. The paper also provdes maageral mplcao for secures frms sce aalyzes geder, age ad vesors behavor of ole raders. Ths paper aalyzes he effec of ole radg o vesors radg behavor ad reur performace based o vesors radg daa provded by a maor secury frm Tawa. Our emprcal fdgs are summarzed as follows:. Male ad he youger raders preferred ole radg. Ivesors who had beer gross reur ed o swchg o ole radg mechasm ad reforcg he behavor of over cofdece. 2. Eve hough vesors raded more acvely afer gog ole, her rade performace s o egavely affeced. 3. Ole radg does o sgfcaly crease formao-rggered rades (speculave radg), eve hough here s more access o formao afer gog ole. 4. The secury frms offer ole erface for vesors o place sock orders ad vesors ca rade quckly ad coveely wh a ole radg mechasm. Wh he emprcal sudy we fd vesors ca oba prce ad real me formao hrough he ole sysem ad he order execuo effcecy of ole radg s beer ha phoe-based radg. Due o research cosras ha complee vesors begg porfolo accou daa could o be obaed, we ca use logc ferece o calculae, whch s suffce o valdae he hypohess. As for he research suggesos, hs paper obaed vesors radg daa provded by a maor secures frm Tawa, cludg geder, age ad eure. I order o proec vesors persoal formao, we seleced he vrual cusomer umber. If we ca ge furher dealed daa (e.g., vesors educao, maral saus, come ad vesme experece.ec.) hrough secures frms o mpleme quesoare, we ca udersad vesors behavor more. efereces [] Awer, Scheble Jr. ad Seves, A Emprcal Aalyss of he Effecs of Ole Tradg o Marke eacos o Eargs Aoucemes. workg paper, School of Maageme, Syracuse Uversy,200. [2] Averll, ersoal Corol over Aversve Smul ad Is elaoshp o Sress, sychologcal Bulle, 80, , 973. [3] Balasubramaa, Koaa ad Meo, Udersadg Ole Ivesors: A Aalyss of Ther Ivesg Behavor ad Audes, workg paper, Uversy of Texas, Aus, 999. [4] Barber ad Odea, Tradg s hazardous o your wealh : The commo sock vesme performace of dvdual vesors. Joural of Face, 55, , [5] Barber ad Odea, Boys wll be boys: Geder, Overcofdece, ad Commo sock vesme, Quarerly Joural of Ecoomcs, February, 6, ,200. [6] Barber ad Odea, Ole Ivesors : Do he Slow De Frs?, evew of Facal Sudes, Vol. 5, , [7] Beass, Sweeey ad Drevo, Md over Maer: erceved Success a sychokess, Joural of ersoaly ad Socal sychology, 37, ,979. [8] Burger, Desre for Corol ad he Illuso of Corol: The Effecs of Famlary ad Sequece of Oucomes, Joural of esearch ersoaly, 20, 66-76, 986. [9] Cho, Labso ad Merck, Does he Iere Icrease Tradg? Evdece from Ivesor Behavor 40(k) las, workg paper, Harvard Uversy,2000. [0] Dael, Hrshlefer ad Subrahmayam, Ivesor psychology ad secury marke uderad overreacos, Joural of Face 53, , 998. [] De Bod ad Thaler, Facal decso-makg markes ad frms:a behavoral perspecve. ober A. Jarrow, V. Maksmovc ad W. Z. Zemba(Eds.). : Face, Hadbooks Operaos esearch ad Maageme Scece, 9, , [2] Fama ad Frech, Commo rsk facors he reurs o socks ad bods, Joural of Facal Ecoomcs, 33, pp3-56,993. [3] Fschhoff, Slovc ad Lchese, Kowg wh Ceray: The Appropraeess of Exreme Cofdece. Joural of Expermeal sychology, 3, ,977. The 9h Ieraoal Coferece o Elecroc Busess, Macau, November 30 - December 4, 2009

6 270 [4] J.. Wlkso, Nolear resoa crcu devces (ae syle), U.S. ae , July 6, 990. [5] Grff ad Tversky, The Weghg of Evdece ad he Deermas of Cofdece, Cogve sychology, 24, 4 435, 992. [6] Goezma ad Kumar, Why do dvduals hold uder dversfed porfolos?, Workg aper, Yale School of Maageme, [7] Harrs ad avv, Dffereces of Opo Make a Horse ace, evew of Facal Sudes, 6, ,993. [8] Hoge, Cofdece Decso as a Idex of erceved Accuracy of Iformao rocessg, syhoomc Scece, 8, , 970. [9] Hog, Iformao-rocessg Coss Ole Sock Tradg, Elecroc Markes, 0, 92-96, [20] Kahema ad epe, Aspecs of vesor psychology, Joural of orfolo Maageme, 52-65, 998. [2] Koema, Davs ad emus, Compuer- Asssed Decso Makg: erformace, Belefs, ad he Illuso of Corol, Orgazaoal Behavor ad Huma Decso rocesses, 57, 26-37, [22] Lager ad oh, Heads I W, Tals I s Chace: The Illuso of Corol as a Fuco of he Sequece of Oucomes a urely Chace Task, Joural of ersoaly ad Socal sychology, 32, ,975. [23] Lchese, Fschhoff ad hllps, Calbrao of robables: The Sae of he Ar o 980, D. Kahema,. Slovc, ad A. Tversky (eds.), Judgme Uder Uceray: Heurscs ad Bases, Cambrdge Uversy ress, Cambrdge,982. [24] Markus ad Mar, 2003, Overcofdece ad Tradg Volume, Workg aper. Y. C. George L, Y. C. Elea Kag, Chug-L Chu [25] Moore, Kurzberg, Fox ad Bazerma, osve Illusos ad Forecasg Errors Muual Fud Ivesme Decsos, Orgazaoal Behavor ad Huma Decso rocesses, 79, 95 4, 999. [26] Odea, Do Ivesors Trade Too Much? The Amerca Ecoomc evew, December, 89, , 999. [27] Oskamp, Overco.dece Case-Sudy Judgmes, Joural of Cosulg sychology, 29, ,965. [28] eerso ad z, Cofdece, Uceray, ad he Use of Iformao, Joural of Expermeal sychology, 4, 85 92, 988. [29] olkocheko, Household porfolo dversfcao: A case for rak depede prefereces, Workg aper, Uversy of Mesoa, [30] Koaa, Meo ad Balasubramaa The mplcaos of ole vesg Assocao for Compug Machery. Commucaos of he ACM; Ja [3] Slovc, Behavoral roblems of Adherg o a Decso olcy, workg paper, Orego esearch Isue, 973. [32] Sama, Thorley ad Vorkk, Ivesor overcofdece ad radg volume. Workg paper, Saa Clara Uversy, [33] Vara, Dffereces of Opo Facal Markes, I Facal sk:theory, Evdece ad Implcaos. Eded by Soe, C. C., (roceedgs of he Eleveh Aual Ecoomc olcy coferece of he Federal everse Bak of S. Lous, Boso.),989. [34] Worma, Some Deermas of erceved Corol, Joural of ersoaly ad Socal sychology, 3, ,975. [35] Yaes, Judgme ad Decso Makg, rece Hall, Eglewood Clffs, NJ,990. The 9h Ieraoal Coferece o Elecroc Busess, Macau, November 30 - December 4, 2009