Abstract

http://ssrn.com/abstract=965810
 
 

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Option Trading and Individual Investor Performance


Rob Bauer


Maastricht University

Mathijs Cosemans


Erasmus University - Rotterdam School of Management

Piet M. A. Eichholtz


University of Maastricht - Limburg Institute of Financial Economics (LIFE)

October 24, 2008

EFA 2007 Ljubljana Meetings Paper
Journal of Banking and Finance, Forthcoming

Abstract:     
This paper examines the impact of option trading on individual investor performance. The results show that most investors incur substantial losses on their option investments, which are much larger than the losses from equity trading. We attribute the detrimental impact of option trading on investor performance to poor market timing that results from overreaction to past stock market returns. High trading costs further contribute to the poor returns on option investments. Gambling and entertainment appear to be the most important motivations for trading options while hedging motives only play a minor role. We also provide strong evidence of performance persistence among option traders.

Number of Pages in PDF File: 42

Keywords: option trading, individual investor performance, investor sentiment, performance persistence, Internet brokerage

JEL Classification: G11, G12, G14, G24

working papers series


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Date posted: March 1, 2007 ; Last revised: December 20, 2008

Suggested Citation

Bauer, Rob and Cosemans, Mathijs and Eichholtz, Piet M. A., Option Trading and Individual Investor Performance (October 24, 2008). EFA 2007 Ljubljana Meetings Paper; Journal of Banking and Finance, Forthcoming. Available at SSRN: http://ssrn.com/abstract=965810 or http://dx.doi.org/10.2139/ssrn.965810

Contact Information

Rob Bauer
Maastricht University ( email )
P.O. Box 616
Maastricht, 6200 MD
Netherlands
+31 43 3883871 (Phone)
Mathijs Cosemans (Contact Author)
Erasmus University - Rotterdam School of Management ( email )
Burgemeester Oudlaan 50
Rotterdam
Netherlands
+31104082371 (Phone)
+31104089017 (Fax)
HOME PAGE: http://www.mathijscosemans.com
Piet M. A. Eichholtz
University of Maastricht - Limburg Institute of Financial Economics (LIFE) ( email )
P.O. Box 616
Maastricht, 6200 MD
Netherlands
+31 43 3883648 (Phone)
+31 43 3258530 (Fax)
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