The Importance of Trade Tax

Trade tax in Korea Stock Exchange is a kind of trading cost. When we compute returns we consider trade tax. Traders do not need to pay trade tax when they buy shares. However, traders have to pay trade tax, which is 0.3% of selling amount, when they sell shares. We examine whether traders can make a profit from the trading pending on S&P 500 index. The profitable trading strategy that traders short-sell stocks at open price and buy at close price if yesterday S&P 500 index is up is based on the results of Park and Yi (2011) and Park (2012). We find that if trade tax is charged to compute returns, a shortselling-open-and-buying-close strategy does not make a profit. We consider other factors that might affect returns : foreign investor ownership, the market value of firms, trade volume, and dollar trading amount. We find that there is no trading profit even if these factors are considered.