Do Emotions Benefit Investment Decisions? Anticipatory Emotion and Investment Decisions in Non-professional Investors

Increasing financial trading performance is big business. A lingering question within academia and industry concerns whether emotions improve or degrade trading performance. In this study, 30 participants distributed hypothetical wealth between a share (a risk) and the bank (paying a small, sure, gain) within four trading games. Skin Conductance Response was measured while playing the games to measure anticipatory emotion, a covert emotion signal that impacts decision-making. Anticipatory emotion was significantly associated with trading performance but the direction of the correlation was dependent upon the share’s movement. Thus, anticipatory emotion is neither wholly “good” nor “bad” for trading; instead, the relationship is context-dependent. This is one of the first studies exploring the association between anticipatory emotion and trading behaviour using trading games within an experimentally rigorous environment. Our findings elucidate the relationship between anticipatory emotion and financial decision-making and have applications for improving trading performance in novice and expert traders.

Cryptocurrency investment: A safe venture or a new type of gambling?

Investment behaviour and gambling overlap from time to time. It is stated that there is a spectrum between gambling and investment behaviour, and there are “speculative” investment tools in the middle of the spectrum. Considering that it presents a higher risk because of its high volatility compared to traditional investment instruments, trading cryptocurrencies can become pathological and gambling-like. This study aims to investigate the pathological trading behaviour and frequency among cryptocurrency investors, to investigate additional gambling disorders, and to investigate the relationship between cryptocurrency investment behaviour and impulsivity. An online questionnaire was created to investigate these issues. In the questionnaire, the Pathological Trading Scale, the South Oaks Gambling Screen Test and the Barratt Impulsivity Scale were all used. A total of three hundred persons were evaluated. We found that total pathological traders were 48.7% of all traders, impulsivity in 18–25 age group was higher, high-frequency traders were more pathological, and their impulsivity was higher; also margin traders and day traders show more pathological behaviour. It seems that an important part of cryptocurrency traders may be pathological, and certain of them may have cryptocurrency addiction, which can be evaluated as a subtype of gambling disorder.Résumé Le comportement de l’investisseur et celui du joueur se chevauchent de temps à autre. On dit qu’il existe un spectre entre ces deux comportements, au milieu duquel se trouvent des outils d’investissement « spéculatif ». Compte tenu de leur risque plus élevé dû à leur plus grande volatilité par rapport aux instruments d’investissement traditionnels, les échanges de cryptomonnaies peuvent devenir pathologiques et s’apparenter aux jeux de hasard. Cette étude vise à analyser le comportement des investisseurs de cryptomonnaies et la fréquence de leurs opérations afin d’examiner d’autres troubles liés à la pratique des jeux de hasard et la relation entre le comportement des investisseurs de cryptomonnaies et l’impulsivité. Un questionnaire en ligne a été créé à cette fin et la Pathological Trading Scale, le South Oaks Gambling Screen Test et la Barratt Impulsivity Scale y étaient utilisés. En tout, 300 personnes ont été évaluées. Nous avons constaté que les joueurs pathologiques représentaient 48,7% de tous les spéculateurs, que l’impulsivité dans le groupe des personnes de 18 à 25 ans était plus élevée, et que les spéculateurs qui effectuaient des transactions plus souvent étaient plus pathologiques et faisaient preuve d’une plus grande impulsivité; de plus, les spéculateurs sur marge et les spéculateurs sur séance affichaient un comportement plus pathologique. Il semble qu’une proportion importante des spéculateurs de cryptomonnaies peuvent être pathologiques, et que certains d’entre eux peuvent être dépendants à l’égard des cryptomonnaies, ce qui peut être évalué comme un sous-type de jeu compulsif.

Keynes's trading on Wall Street: did he follow the same behaviour when investing for himself and for King's?

In the last few years Keynes's investment activity, both as an individual trader and as a manager of institutions’ portfolios, has attracted attention in the specialised literature. Recently his investments on Wall Street, in particular – both on his own account (Cristiano, Marcuzzo and Sanfilippo 2018) and on behalf of King's College, Cambridge (Chambers and Kabiri 2016) – have been analysed, and the evident connection with his theoretical analysis of the functioning of the financial markets contained in chapter 12 of The General Theory has been duly stressed. This article aims to contribute to a more comprehensive understanding of Keynes's trading behaviour on Wall Street by providing a detailed comparison of his investment choices when he traded for himself and for King's. There are similarities, as might be expected, but also significant differences, well worth investigating. As far as the differences are concerned, one of the most striking is to be seen, for instance, in his attitude when, after a period of bull market in 1936, he had to face the spring 1937 burst of the speculative bubble and subsequent recession. Analysis of his behaviour in this specific case reveals that the event took him by surprise but his reaction differed with regard to his personal investments and the King's investments. The prevalence of a ‘buy and hold’ strategy, which, according to Chambers and Kabiri's reconstruction (2016), marked Keynes's behaviour in general (and also in this particular case) when he invested on behalf of King's, was not always his typical choice when the investments were undertaken on his own account. A tentative explanation of this result, which is also grounded on some different features characterising the two portfolios and not sufficiently investigated in previous studies, is at last provided in the article.

Factors Influencing Retail Investors’ Trading Behaviour in the Thai Stock Market

This paper investigates trading behaviour among Thai retail investors in 2016. Using detailed survey data from 491 investors, we examine the characteristics and behavioural patterns that lead to investor bias. Empirical results in the behavioural finance literature indicate that retail investors may not behave reasonably. Behavioural biases may influence investor decisions and affect financial markets. These studies, however, are limited to subsamples of the overall investor groups studied and mainly focus on developed markets. We find that biases are common among investors and that men are more overconfident than women. Moreover, we discover that investors with more experience in trading are less likely to hold their stocks for long periods of time. Further, investors aged 45 and younger hold more diversified portfolios. Another finding is that participants with an income of more than 50,000 Baht a month and/or who employ a number of brokers hold more diversified portfolios. This evidence is consistent with the findings that have been reported for Turkey, India, and Vietnam, indicating that demographic factors are useful for distinguishing between investors in terms of the level of overconfidence bias they exhibit. This result confirms that demographic factors play a role in differentiating and classifying retail investors and should motivate future researchers to consider these factors in their research.

Comparing trading behaviour and profit composition in prediction markets

Prediction markets have established itself as forecasting technique, especially within the IT industry. While the majority of existing studies focuses either on the output of such markets or its design settings, the traders who actually produce the forecasts got only little attention yet. Within this work, we develop a classification scheme for traders of a prediction market that is grounded on both, financial and prediction market literature. Over a period of three years, 127 prediction markets have been observed and its 4.329 traders are separated into seven subgroups (beginners, noise traders, average traders, experts, donkey traders, market makers and superior traders), based on their knowledge, experience and selectivity. We find empirical evidence for the existence of these subgroups and thus for the heterogeneity among the traders. For each of these subgroups, we analyze the trading behaviour and the profit composition.

The behaviour of US investors during presidential elections

PurposeThis study examines the influence of the presidential elections on the behaviour of US investors according to the trading activity of two of the most popular investment vehicles: exchange-traded funds and close-ended funds.Design/methodology/approachBased on the fact that investors in these two investment vehicles differ by, at least, two demographic factors that influence investment decisions, age and labour status, inferences are made about the degree of interest and the amount of trading activity that presidential elections provoke.FindingsThe evidence demonstrates that, during the last four US presidential elections, exchange-traded funds' investors trade significantly more than close-ended funds' investors during several event windows centred on the day of an election in which a republican candidate is elected. Close-ended funds' investors are more active during the election of a democratic candidate, although the statistical evidence in that regard is weak. Thus, it appears reasonable to conclude that younger investors who are gainfully employed are induced to trade by a presidential election in which a republican candidate prevails. Apparently, a democratic victory does not provoke the same behaviour.Originality/valueAlthough the relation between politics and economics is not an unexplored topic, it is not clear whether the presidential elections themselves constitute an event that triggers the trading behaviour of investors.