Fear and Greed in Financial Markets: A Clinical Study of Day-Traders

27 Pages Posted: 12 May 2005 Last revised: 22 Sep 2010

See all articles by Andrew W. Lo

Andrew W. Lo

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER); Massachusetts Institute of Technology (MIT) - Computer Science and Artificial Intelligence Laboratory (CSAIL)

Dmitry V. Repin

SKOLKOVO Moscow School of Management; National Research University Higher School of Economics; Massachusetts Institute of Technology (MIT) - Sloan School of Management

Brett N. Steenbarger

SUNY Upstate Medical University - Department of Psychiatry and Behavioral Sciences

Multiple version iconThere are 2 versions of this paper

Date Written: April 2005

Abstract

We investigate several possible links between psychological factors and trading performance in a sample of 80 anonymous day-traders. Using daily emotional-state surveys over a five-week period as well as personality inventory surveys, we construct measures of personality traits and emotional states for each subject and correlate these measures with daily normalized profits-and-losses records. We find that subjects whose emotional reaction to monetary gains and losses was more intense on both the positive and negative side exhibited significantly worse trading performance. Psychological traits derived from a standardized personality inventory survey do not reveal any specific "trader personality profile", raising the possibility that trading skills may not necessarily be innate, and that different personality types may be able to perform trading functions equally well after proper instruction and practice.

Suggested Citation

Lo, Andrew W. and Repin, Dmitry V. and Steenbarger, Brett N., Fear and Greed in Financial Markets: A Clinical Study of Day-Traders (April 2005). NBER Working Paper No. w11243. Available at SSRN: https://ssrn.com/abstract=697168

Andrew W. Lo (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-618
Cambridge, MA 02142
United States
617-253-0920 (Phone)
781 891-9783 (Fax)

HOME PAGE: http://web.mit.edu/alo/www

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Massachusetts Institute of Technology (MIT) - Computer Science and Artificial Intelligence Laboratory (CSAIL)

Stata Center
Cambridge, MA 02142
United States

Dmitry V. Repin

SKOLKOVO Moscow School of Management ( email )

1st km of Skolkovo highway
Odintsovsky District
Moscow Region
Russia

National Research University Higher School of Economics ( email )

Myasnitskaya street, 20
Moscow, Moscow 119017
Russia

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

Lab for Financial Engineering
Cambridge, MA 02142
United States

Brett N. Steenbarger

SUNY Upstate Medical University - Department of Psychiatry and Behavioral Sciences ( email )

13 Harrison Street
Syracuse, NY 13210
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
206
Abstract Views
1,939
rank
6,639
PlumX Metrics