Psychological dimensions in financial decision making under risk: Loss aversion and house-money effect among professional traders

Fabio Mattos, Philip Garcia

Research output: Chapter in Book/Report/Conference proceedingChapter

Abstract

Using quantile regression and measures of financial risk, we investigate the presence of loss aversion or house-money effects in trader's behavior. Analysis of individual futures and options trading records demonstrates a high level of heterogeneity in behavior. The level of portfolio risk carried influences how traders respond to prior profits. Responses tend to become large and significant mainly at below-average and above-average levels of risk. Traders also exhibit different responses depending on whether they face price or volatility risk. The findings are consistent with studies arguing that behavior varies in different situations, and highlights the importance of studying the full range of outcomes and activities to understand behavior

Original languageEnglish (US)
Title of host publicationHandbook on Psychology of Decision-Making
Subtitle of host publicationNew Research
PublisherNova Science Publishers, Inc.
Pages215-233
Number of pages19
ISBN (Print)9781621005001
StatePublished - Oct 2012

ASJC Scopus subject areas

  • Medicine(all)
  • Psychology(all)

Fingerprint

Dive into the research topics of 'Psychological dimensions in financial decision making under risk: Loss aversion and house-money effect among professional traders'. Together they form a unique fingerprint.

Cite this