 The effect of risk-taking behavior on profitability: Evidence from futures marketTeng Yuan Cheng, Chun I. Lee and Chao Hsien Lin Economic Modelling, 2020, vol. 86, issue C, 19-38 Abstract: We explore how futures traders make a tradeoff between risk and return by examining their risk-taking in the action. By applying a novel measure to their trade-by-trade transactions to capture their tendency in risk-taking, we find a general tendency to reduce risk-taking by cutting positions when facing losses or gains, and the tendency is stronger in the case of losses. However, great variations exist among traders in the risk-taking tendency and the results for trading are opposite for profitable and unprofitable traders. For the unprofitable, more risk-taking by trading more actively leads to greater losses. This is concrete evidence for the prevailing belief in the literature that trading too much, arguably due to overconfidence, is hazardous to investor's wealth. Contrary to that belief, however, we find fresh evidence that more active trading by the profitable traders leads to greater profits, suggesting their trades are likely based on ability and skills. Keywords: Risk-taking; Profitability; Individual trader; Reversals of loss; Overconfidence (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:86:y:2020:i:c:p:19-38 DOI: 10.1016/j.econmod.2019.04.017 Access Statistics for this article Economic Modelling is currently edited by S. Hall and P. Pauly More articles in Economic Modelling from Elsevier |
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