Is there persistence among non-professionals? Evidence from the Chicago Mercantile Exchange Group Trading Challenges

Purpose: The study systematically investigates persistence in performance for simulated trading among non-professional traders in the futures market. Design/methodology/approach: In this study, the authors employ a novel data set from the Chicago Mercantile Exchange (CME) Group's Trading Challenges for years 2014 through 2018 and expand upon the empirical methodology of Malkiel (1995) through improved interval estimations in testing for persistence in performance. The authors implement Fama-MacBeth style regressions to understand the degree of persistence in performance and the extent to which non-professionals extrapolate from prior returns. They adjust returns for risk through the Fama and French (2015) five-factor model in understanding whether the sample of non-professionals is able to produce excess returns after expenses and whether there is evidence of excess gross to cover expenses. Findings: The empirical analysis suggests strong evidence for performance persistence among non-professionals participating in the Preliminary Rounds. In the Championship Rounds, the authors find that the persistence effect becomes stronger in economic and statistical significance after accounting for expenses. The results suggest that competition and transaction costs help to distinguish between winners and losers. When conducting Fama-MacBeth style regressions, the authors present evidence that strongly supports the persistence effect and over-extrapolation. While the results of the multi-factor model analysis suggest that, after adjusting for risk, most teams are experiencing negative excess returns prior to expenses, the authors also uncover evidence of teams earning returns sufficient to cover their expenses. Originality/value: The authors bridge the gap between the literature on performance persistence and the emerging literature on non-professionals in the financial markets. Data from the CME Group’s Trading Challenge provide a rich source in studying the beliefs of non-professionals, and this study is helpful for understanding how beliefs, operationalized in simulated trades, perform over short time horizons, thereby providing insights into the behavioral dynamics of the financial markets. The results provide new empirical evidence for performance persistence among non-professionals.