A Note on Loss Aversion and Futures Hedging

Donald Lien

Journal of Futures Markets, 2001, vol. 21, issue 7, 681-692

Abstract: This note examines the effect of loss aversion on the futures trading behavior of a short hedger. Using a modified constant‐absolute‐risk‐aversion utility function, I show that loss aversion has no effect in an unbiased futures market. It has different, predictable impacts when the futures market is in backwardation or contango. © 2001 John Wiley & Sons, Inc. Jrl Fut Mark 21: 681–692, 2001

Date: 2001
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