Adrian Lee thanks an anonymous referee, Kingsley Fong, Doug Foster, Michael Graham, Susanne Griebsch, Janice How, Daniel Smith and conference participants at the 3rd Conference on Financial Markets and Corporate Governance in Melbourne, Australia and the 2012 World Finance Conference in Rio de Janeiro, Brazil for helpful comments and suggestions. We thank Zhe Chen for research assistance.
Contracts for dummies? The performance of investors in contracts for difference
Article first published online: 24 MAR 2013
© 2013 The Authors Accounting and Finance © 2013 AFAANZ
Accounting & Finance
Volume 54, Issue 3, pages 965–997, September 2014
How to Cite
Lee, A. D. and Choy, S. (2014), Contracts for dummies? The performance of investors in contracts for difference. Accounting & Finance, 54: 965–997. doi: 10.1111/acfi.12018
- Issue published online: 23 SEP 2014
- Article first published online: 24 MAR 2013
- Manuscript Accepted: 16 FEB 2013
- Manuscript Received: 26 APR 2012
- Contracts for difference;
- Individual investors;
- Trading costs
Investors widely use contracts for difference (CFDs) to leverage and short sell underlying financial assets. We investigate the after cost performance of investors in Australian Securities Exchange listed share CFDs, and find that market order CFD trades earn small positive returns at the daily horizon, with negative returns reported for one month to one year horizons due to financing costs. Market orders also net sell positions, which suggests that investors use CFDs for shorting opportunities. Overall, we find that liquidity demanders in CFDs obtain favourable execution, which is inconsistent with the view that CFDs are used by naive individuals.