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Trading Puzzle

  • Orhan Erdem
  • Evren Arik
  • Serkan Yuksel

Many studies explain the high volume of trade in stock markets with non-rational trades of individuals. They claim high volume of trading seems to exceed the trading and hedging needs of the investors. Here we analyze the weekly aggregated daily trades in Borsa Ýstanbul (formerly Istanbul Stock Exchange) of 20,000 individual investors over two year period from 2011 to 2012. Borsa Ýstanbul has one of highest share turnover ratio worldwide (141.8% as of 2012) which makes it an ideal candidate to explore the effects of large turnover ratios. We examine the return performance of individual investors with respect to various factors such as portfolio size, turnover ratio and also demographic factors: gender and age. The main finding and the contribution of the paper is that, the return of the individual portfolio is positively correlated with the portfolio size. Interestingly, almost 70% of all individual investors cannot beat the market. Investors who have high turnover underperform compared to those who have lower turnover ratios. Male investors trade more and lose more vis-à-vis the female and older investors have higher returns for both genders.

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Article provided by Research and Business Development Department, Borsa Istanbul in its journal BIFEC Book of Abstracts & Proceedings.

Volume (Year): 1 (2014)
Issue (Month): 2 (March)
Pages: 66-81

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Handle: RePEc:bor:bifeca:v:1:y:2014:i:2:p:66-81
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