The effect of time-induced stress on financial decision making in real markets: The case of traffic congestion

The effect of time-induced stress on financial decision making in real markets: The case of traffic congestion

By: Gelman S., Kliger D.
Published in: Journal of Economic Behavior and Organization
SDGs : SDG 09  |  Units: Social Sciences  | Time: 2021 |  Link
Description: We study the role of stress induced by time constraints on investor decision making in real financial markets. We use un expected traffic congestion as a stress trigger. Our dependent variable is the slope of the implied volatility function (IVF) of options on Russian Trading System Index (RTSI) futures at the left-hand side of the volatility smile (cf. Bollen and Whaley, 2004). Controlling for relevant factors, we find that this slope at the opening of the main trading session is higher subsequent to morning traffic jams, suggesting that investors under stress assign higher weights to extreme loss scenarios. This effect is economically exploitable before transaction costs. © 2020

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