(Un)skilled Leveraged Trading of Retail Investors

33 Pages Posted: 9 Feb 2013 Last revised: 14 Oct 2013

See all articles by Stephan Meyer

Stephan Meyer

Karlsruhe Institute of Technology

Sebastian Schroff

University of Hohenheim

Christof Weinhardt

Karlsruhe Institute of Technology

Date Written: February 7, 2013

Abstract

We study the trading behavior of retail investors in the market of leveraged bank-issued retail derivatives designed to trade excessively, speculate and gamble on ongoing trends and market movements. We analyze whether retail investors have private information and benefit disproportionately or whether they gamble. We answer this question along three dimensions: (i) profitability, (ii) news trading, and (iii) sensitivity to implicit trading costs. We distinguish derivatives by the type of underlying (index vs. individual stocks). We find that raw returns are negative for derivatives with stock as underlying, and only partially positive for those with index as underlying. Nevertheless, risk-adjusted returns show a poor performance with sharpe ratios below one. We show that retail investors are attracted by news, but do not have private information prior to news events. Finally, we categorize investors according to their sensitivity to implicit trading costs. We find that non-sensitive investors perform worse than sensitive investors.

Keywords: Retail Investors, Gambling, Speculation, Implicit Trading Costs, Option Pricing, Bank-issued Derivatives

JEL Classification: G10, G14

Suggested Citation

Meyer, Stephan and Schroff, Sebastian and Weinhardt, Christof, (Un)skilled Leveraged Trading of Retail Investors (February 7, 2013). Available at SSRN: https://ssrn.com/abstract=2213255 or http://dx.doi.org/10.2139/ssrn.2213255

Stephan Meyer (Contact Author)

Karlsruhe Institute of Technology ( email )

Kaiserstraße 12
Karlsruhe, Baden Württemberg 76131
Germany

Sebastian Schroff

University of Hohenheim ( email )

Germany

Christof Weinhardt

Karlsruhe Institute of Technology ( email )

Kaiserstraße 12
Karlsruhe, Baden Württemberg 76131
Germany

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
199
Abstract Views
2,629
rank
168,586
PlumX Metrics