Robustness

國

立 政 治 大 學

‧

N a tio na

l C h engchi U ni ve rs it y

32

5. Robustness

To understand whether financial crisis indeed cause the behavioral bias of investors, we further separate our sample period into two periods by the happening date of financial crisis, August 9, 2007. The earlier period shown on table is before, then the later one is after. Therefore, we will focus on the heterogeneity of behaviors in different investor types before and during financial crisis in this section.

5.1. Descriptive Statistics

Table 5.1 illustrates the descriptive statistics of investors, trading volumes and round trips for different investor types on TXF, MXF, EXF and FXF before or during financial crisis.

Because the financial market in Taiwan steadily develop, we can observe on Panel A of Table 5.1 that the number of investors in most of investor types, except for proprietaries, relatively grow up. In the Panel B of Table 5.1, the percentages of investor number in individuals and foreigners almost keep the same. However, the percentage of investor number in domestic institutions increase visibly. Instead, the percentage in proprietaries goes down apparently.

The results from Panel C and D of Table 5.1 are that trading volumes of different investor types are larger on most of contracts, including TXF, MXF and FXF. However, EXF is relatively unattractive for retail investors like domestic institutions and individuals. Maybe the reason is the crowding out effect of investment. Because of the budget limit, when you put more on some of contracts, the other contracts would be crowed out so that trading volume decrease. Overall, it appears that investors actively participate in trading during financial crisis. Due to the change of participation on contracts, there are a little different percentage allocations on four contracts. Most significant change of all are on EXF and FXF. Individual investors put more weight on

‧ 國

立 政 治 大 學

‧

N a tio na

l C h engchi U ni ve rs it y

33

FXF, but less on EXF. In contrast, proprietaries and foreigners put more weight on EXF, but less on FXF.

For the descriptive statistic of round trips in Panel E and F, we can find that all of round trips in four investor types grow up. Because of the financial crisis, all investors are afraid of any fluctuations in the market so that they trade frequently and create more round trips. Additionally, there are some change on the relationship between winner and loser round trips during financial crisis. We notice that the percentage of winner round trips on FXF in domestic institutions is reversely higher than loser round trips.

So do TXF in proprietaries and both MXF and EXF in foreigners. These results mean that there are performance biases caused by financial crisis in different investor types.

In the Panel E of Table 5.1, there are a clear increase on average trading volume in proprietaries and foreigners. This confirm our imagination of that relatively large institutions would have more trading volume during financial crisis. Because they believe their professional and have more funds to support, large institutions are likely to put more in the market. But for retail investors, namely domestic institutions and individuals, they have more concern about their investments so that their trading volume might increase or decrease on different futures contracts.

Due to the relationship we find previously between trading volume and round trips, we can obtain the similar result that most of investors trade more and have more round trips during financial crisis.

‧

Descriptive Statistics of Investors, Trading Volumes, and Round Trips Before or During Financial Crisis

Table 5.1 reports the descriptive statistics of investors, trading volumes and round trips in different investor types on TXF, MXF, EXF and FXF before or during financial crisis. In order to analyze the effect of financial crisis, we divide our sample period. The point we separate our sample period into two periods is August 9, 2007. We use before and after to stand for earlier period and later period. The investor types include domestic institutions, individuals, proprietaries, and foreigners. We also add the all of investors as a reference. All of investors means the total investors during sample period.

In the Panel A to F, we calculate both number and percentage for different investor types in two periods. The number of investors is the accounts in each of investor types and the number of trading volume is the sum of the quantities of orders for every investor type. We count the number of round trips and categorize the round trips into winner round trips (Winners) and loser round trips (Losers) in different investor type for two sample periods. If he round trips cross over August 9, 2007, we will put them to the earlier period. The reason is that we analyze the percentage of round trip which cross over is so low that we can neglect the effect. Additionally, we calculate the percentage for investors and trading volume. The percentage of investor number for each of investor types is the number of investors divided by the number of all investors. Likewise, the percentage of trading volume number for each of investor types is the number of trading volume divided by the number of all trading volume. There are two ways of calculating the percentage of round trip number. For the investor types, it is the number of round trip divided by all of round trips. However, for the round trip type, the percentage is that winner or loser round trips account for the total round trips in one investor type.

In the Panel G and H, there are average trading volume and average round trips for investors for different investor types in two sample periods. Panel B Percentage of Investor Number

Investor Type

Percentage of Investor Number

TXF MXF EXF FXF

‧

Individuals 2,632,695 4,900,441 1,313,728 4,560,752 418,157 425,091 288,704 417,366 Winner 1,544,017 2,823,303 763,688 2,575,663 262,513 264,340 178,065 258,568 Loser 1,088,678 2,077,138 550,040 1,985,089 155,644 160,751 110,639 158,798

Proprietaries 11,584 19,184 3,716 5,140 3,314 5,611 3,038 5,346

All 2,655,770 4,942,985 1,318,985 4,571,694 423,532 433,169 293,489 424,970 Winners 1,555,954 2,846,533 766,866 2,581,861 265,400 268,767 180,397 262,443 Losers 1,099,816 2,096,452 552,119 1,989,833 158,132 164,402 113,092 162,527

‧

Investor Type

‧

Table 5.2 shows the statistics on duration of winner round trip, duration of loser round trip, and disposition effect of different individual groups by trading volume on TXF, MXF, EXF and FXF before or during financial crisis.

In the Panel A of Table 5.2, we focus on the change of duration in different investor types before and during financial crisis. For the individuals and proprietaries, both average winner round trip duration and average loser round trip duration are smaller during financial crisis. Because of the rapid change in the market, investors are likely to realize their positions quickly. However, the average winner round trip duration and average loser round trip duration have identical trend in the domestic institutions. Their average durations increase on most of contracts, except for TXF. The possible reason

‧ 國

立 政 治 大 學

‧

N a tio na

l C h engchi U ni ve rs it y

38

why durations increase is that because domestic institutions trade futures for hedge purpose, they need more time to be the complement of the losses on stocks or recover from losses of positions. Compared to other investor types, foreigners have different results in winner round trip duration and loser round trip duration. Their winner round trip duration is higher, but loser round trip duration is lower. We observe the trading activities of foreigners during financial crisis and find that the fleeting orders of foreigners increase. It means that more and more foreigners use program trading to replace previous trading method. By means of program trading, foreigners reduce the chance of holding losers and realizing winners.

The most important results in Panel B of Table 5.2 are that there are some changes of disposition effect in each of investor types during financial crisis. We can find that domestic institutions display more disposition effect on TXF and EXF. So do proprietaries on MXF and EXF. Particularly, individuals exhibit more disposition effect on four contracts during financial crisis. In contrast, foreigners have less disposition effect. We could even say that foreigners do not display disposition effect and become more rational. These results confirm that financial crisis has influence on the disposition effect in different investor types.

‧

Disposition Effect of Different Investor Types Before or During Financial Crisis

Table 5.2 illustrates the disposition effect of different investor types on TXF, MXF, EXF and FXF before or during financial crisis. In order to analyze the effect of financial crisis, we divide our sample period. The point we separate our sample period into two periods is August 9, 2007. We use before and after to stand for earlier period and later period.

In the Panel A, we calculate the mean winner round trip duration and mean loser round trip duration for every investor. Then, we separately average the mean winner round trip duration and the mean loser round trip duration by investor account for different investor types. To simplify the name of items, we use winner duration to represent the average the mean winner round trip duration by investor account. Similarly, loser duration represents the average the mean loser round trip duration by investor account. The unit of duration is minute.

In the Panel B and C, we provide two method to evaluate whether the investors exhibit the disposition effect. If the winner duration is smaller than loser duration, it will show that the investor display the disposition effect.

According to this, we use the difference duration between winner and loser and the duration ratio of winner to loser to test the existence of disposition effect. As a result, if the difference duration between winner and loser is negative, we will say that the investor exhibit disposition effect. Likewise, if the duration ratio are smaller than one, we will regard that as the existence of disposition effect.

Panel A Round Trip Duration

‧

Investor Type

Difference Duration between Winner and Loser (by investor account)

Duration Ratio of Winner to Loser

TXF MXF EXF FXF

Table 5.3 shows the performance of trading activities on TXF, MXF, EXF and FXF in different investor types before and during financial crisis.

Overall, the results in Panel A of Table 5.3 are that the average profits of winner round trip and average losses of round trip are smaller during financial crisis. It means that investors demonstrate intolerance with losses. Due to financial crisis, once they face relatively large losses on positions, they will close the positions or reduce their positions in the market. Because individual investors have less information about the market trends, they will realize at a smaller size when the market change sharply. In contrast, foreigners utilize the program trading, so the positions are likely to follow the trading signal and close at a smaller size when the market change quickly. The most special in the Panel A, the average profits of winner round trip on most of contracts are

‧ 國

立 政 治 大 學

‧

N a tio na

l C h engchi U ni ve rs it y

41

higher in domestic institutions. The reason is like previously mentioned that they tend to hold as the complement of losses on stocks so that their winner round trip profit are higher during financial crisis.

In the Panel B of Table 5.3, we can observe that individual investors have poorer performance and display more overconfidence during financial crisis. However, for the institutions, namely domestic institutions, proprietaries and foreigners, they perform better on most of futures contracts. At the same time, they weaken overconfidence on trading activities. As the finding of previous studies, we can confirm that institutional investors are more professional than individuals no matter the market conditions. The reason why institutions are professional might be that they have more information and larger funds to control the situation they face.

‧

Performance of Round Trips and Net Profit Before or During Financial Crisis

Table 5.3 primarily describes the performance of different round trip types and different investor types on TXF, MXF, EXF and FXF before or during financial crisis. In order to analyze the effect of financial crisis, we divide our sample period. The point we separate our sample period into two periods is August 9, 2007. We use before and after to stand for earlier period and later period.

In the Panel A, we calculate the mean profit of winner round trip and the mean loss of loser round trip for every investors. Then, we average the mean profit of winner round trip and mean loss of loser round trip by investor account for different investor types.To simplify the name of items, we use winner profit to represent the average the mean profit of winner round trip by investor account. Similarly, loser loss represents the average the mean loss of loser round trip by investor account. The unit of profit or loss is point.

In the Panel B, we calculate the average net profit by investor account for different investor types before or during financial crisis.

Panel A Round Trip Performance

Investor Type

‧ 國

立 政 治 大 學

‧

N a tio na

l C h engchi U ni ve rs it y

43