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Contracts for dummies? The performance of investors in contracts for difference

journal contribution
posted on 01.09.2014, 00:00 authored by Adrian LeeAdrian Lee, S Choy
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.

History

Journal

Accounting and finance

Volume

54

Issue

3

Pagination

965 - 997

Publisher

Wiley

Location

Chichester, Eng.

ISSN

0810-5391

eISSN

1467-629X

Language

eng

Publication classification

C1.1 Refereed article in a scholarly journal; C Journal article

Copyright notice

2013, The Authors