Loss Aversion Behavior of Futures Day Trader Based on Three Cutting Points

  • 林 鳳珍

Student thesis: Doctoral Thesis


In this study we explore whether futures day traders in the Taiwan Futures Exchange act with loss aversion behavior (LA) between January 1 2006 and December 31 2007 We use three cutting points: maximum realized losses of each day trader (MRL) median of maximum realized losses of each day trader (M-MRL) and midpoint of the trading day 11:15 a m as the preceding period/later period cutting points to examine whether traders with profits or losses in the preceding period would increase or reduce their later period risk-taking based on regression analysis of Coval and Shumway (2005) In addition we analyze whether the differences exist in loss aversions on the basis of investors’ characteristics of sex age and professionalism Our analyses suggest that these new cutting points provide different results Especially the M-MRL cutting point is different from the timeline cutting point of 11:15 a m and the M-MRL cutting point displays loss aversion The reason is that when we use M-MRL as cutting point we can best analyze whether the investors have acted with loss aversion when they act under the pressure of fearing loss just before the time where they face the maximum loss of the trading day In addition the M-MRL cutting point functions better than the middle-time cutting point in the S-shaped value domain of Prospect Theory However in order to highlight the trader’s persistent behavioral pattern we run regression based on the individual monthly data by averaging daily value of all variables for each trader Calculating average monthly data is also controlling for heterogeneity across traders Hence we use the monthly data instead of daily data to analyze trader’s loss aversion behavior Finally we find that different characteristics correlate differently with investment behavior As for the gender aspect result displays that male but not for female shows significant loss aversion behaviors At the aspect of age result shows that investors who are in their 30s or above act with significant LA biased behaviors especially older males The result of professionalism shows that non-professional investors display statistically significant loss aversion behaviors especially male non-professional investors
Date of Award2016 Sep 9
Original languageEnglish
SupervisorHung-chih Li (Supervisor)

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