Emotional Engagement and Trading Performance

Management Science, in press.

47 Pages Posted: 4 Sep 2020 Last revised: 16 Jan 2023

See all articles by Peter Bossaerts

Peter Bossaerts

University of Cambridge

Felix Fattinger

WU Vienna University of Economics and Business

Kristian Rotaru

Department of Accounting, Monash Business School

Katherine Xu

University of Melbourne

Date Written: January 14, 2023

Abstract

Emotional involvement is known to be necessary but not sufficient for good decision-making in the face of uncertainty. It has been conjectured that emotional engagement in anticipation of risky outcomes constitutes ``good'' emotions. We introduce a new methodology to determine whether anticipatory emotional engagement is beneficial in the context of trading in financial markets. We focus on heart rate changes because they occur at a sufficiently high frequency to discern timing relative to events in the marketplace. After conservatively adjusting for multiple hypothesis testing, we find that participants whose heart rate changes anticipate their order submissions at inflated prices earn significantly more, while participants whose heart rate responds to their trades earn significantly less. By investigating co-integration between skin conductance response and the dynamics of individual portfolio values, we confirm the importance of emotional involvement in determining who makes or loses money.

Keywords: Financial Markets, Emotions, Decision-Making, Asset Pricing, SCR, ECG

JEL Classification: C92, G02, D87, G12

Suggested Citation

Bossaerts, Peter L. and Fattinger, Felix and Rotaru, Kristian and Xu, Kaitong, Emotional Engagement and Trading Performance (January 14, 2023). Management Science, in press., Available at SSRN: https://ssrn.com/abstract=3661137 or http://dx.doi.org/10.2139/ssrn.3661137

Peter L. Bossaerts (Contact Author)

University of Cambridge ( email )

Faculty of Economics
Cambridge, CB3 9DD
United Kingdom

Felix Fattinger

WU Vienna University of Economics and Business ( email )

Welthandelsplatz 1, Building D1, 3rd Floor
Vienna, 1020
Austria

Kristian Rotaru

Department of Accounting, Monash Business School ( email )

900 Dandenong Rd
Caulfield East, Victoria 3145
Australia
+613-990-34567 (Phone)

Kaitong Xu

University of Melbourne ( email )

Melbourne
Australia

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