The house money effect and local traders on the Sydney Futures Exchange

Alex Frino, Joel Grant, David Johnstone*

*Corresponding author for this work

Research output: Contribution to journalArticle

35 Citations (Scopus)

Abstract

The "house money effect" describes the psychological tendency of investors to become increasingly risk-seeking immediately following monetary gains. We observe evidence consistent with this behavioral bias in the trades executed by professional futures traders ("locals") on the Sydney Futures Exchange (SFE). Previous research demonstrates the house money effect among participants in laboratory settings but not among actual traders. By distinguishing qualitatively between gains and losses, rather than treating these as merely positive and negative values of a single psychological driver, we test for loss aversion and the house money effect simultaneously. Contrary to previous studies, no significant evidence is found of loss aversion.

Original languageEnglish
Pages (from-to)8-25
Number of pages18
JournalPacific-Basin finance journal
Volume16
Issue number1-2
DOIs
Publication statusPublished - Jan 2008

Keywords

  • Behavioral finance
  • Disposition effect
  • Futures traders
  • House money effect

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