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

Sergey Gelman and Doron Kliger

Journal of Economic Behavior & Organization, 2021, vol. 185, issue C, 814-841

Abstract: We study the role of stress induced by time constraints on investor decision making in real financial markets. We use unexpected 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.

Keywords: Behavioral finance; GIS; Implied volatility function; Weighting of extreme scenarios (search for similar items in EconPapers)
JEL-codes: G02 G13 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0167268120303905
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:185:y:2021:i:c:p:814-841

DOI: 10.1016/j.jebo.2020.10.022

Access Statistics for this article

Journal of Economic Behavior & Organization is currently edited by Houser, D. and Puzzello, D.

More articles in Journal of Economic Behavior & Organization from Elsevier
Bibliographic data for series maintained by Catherine Liu ().