Research results show that the return on short-selling investments focused on institutions and foreigners is far higher than that of credit investments, which are invested in stocks in debt. Institutional and foreign short-selling investments generated more than 900 billion won, while credit investments with a high proportion of individual investors earned 22.3 billion won.
This is a content that supports the claim that short selling is a’sloping playground’ for institutions and foreign investors, as individual investors are being pushed for information and mobilization of funds. Individuals account for only 1.1% of domestic short selling investments (as of 2019).
Short sale of shares. Shutterstock
Thesis “Investment Performance of Short Selling and Credit Transactions” by Dr. Eunah Lim and Professor Jeon Sang-kyung of Hanyang University in Vol. 37, Vol. 37 of the Korean Financial Management Association, published from June 2016 to June 2019 36 It contains the results of monthly short selling and credit transaction (loan) data analysis.
Short selling is an investment technique that borrows and sells stocks when the stock price is expected to decline, and then buys and repays the stock at a lower price when the stock price goes down. Credit financing is an investment method in which stock prices are expected to rise, and stocks are bought and invested by borrowing money from a brokerage company.
In terms of volume and price alone, credit transactions were larger than short selling. In terms of the transaction amount for the three years until June 2019, credit transactions (547 trillion 92.7 billion won) are twice that of short selling (309 trillion 813.2 billion won).
On the other hand, the return on investment was 39 times higher in short-selling investment than in credit transaction. This is the result of the researchers calculating the average price and holding period of the investment income from short selling and credit transactions. The proceeds from short selling during the study period were 9175 billion, 50.26 million won, which was 39 times that of the credit transaction revenue (23.38 billion won). The average daily income is 1.25 billion won for short selling and 31.8 million won for credit transactions.
The researchers said, “In the case of short selling transactions, the proportion of institutional and foreign investors is high, and in the case of credit transactions, the proportion of individual investors is high.” In terms of relative cost advantage, selection of stocks, and information, short selling traders are compared to individual investors. You can see the advantage.”
It was also confirmed that the higher the proportion of short selling transactions, the higher the profitability of short selling investments. This means that there were many opportunities to realize profits as the actual stock price of stocks that were driven by short selling fell. On the other hand, credit transactions had the opposite result. The more credit-intensive stocks, the lower their profitability. The researchers analyzed, “This means that credit traders have no information and cannot realize profits.”
It was also found that it was difficult to make a return on credit investment due to the power of short selling. The researchers said, “In the downturn period, even if there is a short selling force, even if there is a short selling force (borrowing money to invest), the credit transaction generated profits.” .
Individual investors who oppose the resumption of short selling are concerned that the resumption of short selling could result in significant losses for individual investors. Meanwhile, the credit transaction balance as of the 14th of this month was 21,2826 billion won, up more than 2 trillion won from the end of last year (19,221.3 billion won).
Meanwhile, pressure from the politicians over whether to resume short selling continued on the 17th. On the same day, Democratic Party lawmaker Park Yong-jin said on his Facebook page, “It is irresponsible to resume short selling without a roadmap for improving the system and preventing illegal activities.” Prime Minister Jeong Sye-gyun also appeared on the radio on the 14th and said, “I personally think that it is a bad system.” The Financial Services Commission, which previously announced the principle of resumption of short selling, is not putting up a different position on the offensive of political parties such as the ruling party.
Reporter Ahn Hyo-seong [email protected]