The Cross-Section of Speculator Skill Evidence from Day Trading

We document economically large differences in the beforeand after-fee returns earned by speculative traders. We establish this result by focusing on day traders in Taiwan from 1992 to 2006. We argue that these traders are almost certainly speculative traders given their short holding period. We sort day traders based on their returns in year y and analyze their subsequent day trading performance in year y+1; the 500 top-ranked day traders go on to earn daily before-fee (after-fee) returns of 49.5 (28.1) bps per day; bottom-ranked day traders go on to earn daily before-fee (after-fee) returns of -17.5 (-34.2) bps per day. The spread in returns between top-ranked and bottom-ranked speculators exceeds 60 bps per day. Our results contribute to the evidence that crosssectional variation in investor skill is an important feature of financial markets.