Trading Behavior of Retail Investors in Derivatives Markets: Evidence from Mini Options

44 Pages Posted: 22 Jul 2021

See all articles by Yubin Li

Yubin Li

Harbin Institute of Technology, Shenzhen

Chen Zhao

Rutgers University - Rutgers Business School - Newark and New Brunswick

Zhaodong Zhong

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick

Date Written: July 6, 2021

Abstract

Mini options are specially catered to retail investors with limited capital for trading options on extremely high-priced securities. The coexistence of both Mini and standard options for the same underlying security provides us a novel setting to investigate whether and how small retail investors use derivatives contracts differently compared to their counterparts. First, we find that the Mini option investors are more subject to constraints of limited attention. Specifically, Mini option investors trade more intensively near market opens, and their trading activities are more heavily influenced by attention-grabbing events and attention-distracting events. Second, we document that Mini option investors’ trading is more likely to be driven by market sentiment than standard option investors. Third, the trading performance of Mini option investors is also worse than that of standard option investors, with less positive intraday returns and more negative overnight returns.

Keywords: options, retail investors, trading behavior, limited attention, sentiment

JEL Classification: G10, G11, G12, G41

Suggested Citation

Li, Yubin and Zhao, Chen and Zhong, Zhaodong, Trading Behavior of Retail Investors in Derivatives Markets: Evidence from Mini Options (July 6, 2021). Journal of Banking and Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3890489

Yubin Li

Harbin Institute of Technology, Shenzhen ( email )

University Town
Nanshan District
Shenzhen, Guangdong 518055
China

Chen Zhao

Rutgers University - Rutgers Business School - Newark and New Brunswick ( email )

923A
1 Washington Park
Newark, NJ NJ 07102
United States
732-789-3686 (Phone)

Zhaodong Zhong (Contact Author)

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick ( email )

Department of Finance, Rutgers Business School
100 Rockafeller Road
Piscataway, NJ 08854
United States

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