Daily income target effects: Evidence from a large sample of professional commodities traders

Peter R. Locke and Steven Mann ()

Journal of Financial Markets, 2009, vol. 12, issue 4, 814-831

Abstract: We provide evidence of rational reference-dependent preferences in the proprietary trading of professional traders. We find increased trading effort and risk taking by traders following morning losses. Further analysis provides no evidence of a deterioration in trading performance subsequent to losses, as neither risk-adjusted performance nor trade execution appear to be negatively affected by prior losses. The evidence supports the existence of rational reference-dependent preferences in the form of trader daily income targets: these professional traders exhibit increased work effort subsequent to abnormal morning losses. The evidence is inconsistent with the alternative explanation of costly loss aversion.

Keywords: Daily; income; targets; Reference; dependence; Loss; aversion (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:12:y:2009:i:4:p:814-831

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