Get access

How Different Types of Traders Behave in the Taiwan Futures Market


  • Hung Chih Li,

    Corresponding author
    • Hung Chih Li is a Professor, The Graduate Institute of Finance at the National Cheng Kung University, Tainan, Taiwan
    Search for more papers by this author
  • Chao Hsien Lin,

    1. Chao Hsien Lin is an Assistant Professor of Finance, National Kaohsiung First University of Science and Technology, Kaohsiung City, Taiwan
    Search for more papers by this author
  • Teng Yuan Cheng,

    1. Teng Yuan Cheng is a Researcher/Assistant Professor of Finance, National Taiwan University, Taipei, Taiwan and Department of Business Administration, Southern Taiwan University, Tainan, Taiwan
    Search for more papers by this author
  • Syouching Lai

    1. Syouching Lai is an Associate Professor of Accounting and Information System, Chang Jung Christian University, Tainan, Taiwan
    Search for more papers by this author

  • We thank the editor and referee for their valuable comments and suggestions. We also benefit greatly from comments of Professor Leonard Goodman, Carl Chen, Ji-Chai Lin, and Hubert J. Chen. In addition, we are grateful to the Taiwan Futures Exchange for making the data available. All remaining errors are the authors’ own. Hungchih Li acknowledges funding support from the National Science Council, 96-2416-H-006-022.

Correspondence author, The Graduate Institute of Finance, National Cheng Kung University, 1 University Road, Tainan, Taiwan 701. Tel: (886)6-2757575, Fax: (886)6-2744104, e-mail:


This paper examines the heterogeneity of the disposition effect and its impact on profitability among three different types of traders, using complete trading data from Taiwan's futures market. More than 70% of the trading volume on this market comes from retail traders (RTs), with an additional 15% from foreign institutional traders (FIs) and proprietary traders (PTs). Both FIs and RTs exhibit the disposition effect whereas PTs do not, and FIs with a weaker disposition effect outperform RTs. This study provides evidence that RTs with the disposition effect tend to lessen the effect in the next period, exhibiting the phenomenon of mean reversion. While previous studies focus only on the static relationship between the disposition effect and profitability, ours explores the dynamic rather than the static behavior of RTs, providing a more complete and objective idea of their trading behavior. In addition, the positive relationship between the current disposition effect and prior profits suggests that the degree of the disposition effect increases when RTs have prior profits. © 2012 Wiley Periodicals, Inc. Jrl Fut Mark 33:1097–1117, 2013