گرایش معامله گران محلی در بازارهای آتی به کنترل ضرر و زیان : شواهد رفتار عقلانی یا غیرعقلانی؟

Behavioral studies of individual traders’ decisions indicate that the “disposition effect” – the propensity of traders to ride losses yet realize gains – is motivated by psychological rather than rational economic considerations. Consistent with previous studies by Heisler [Rev. Futures Markets 13 (1994) 793], Odean [J. Finance 53 (1998) 1775] and Locke and Mann [Do professional traders exhibit loss realization aversion? Working Paper, George Washington University, 2000], we find evidence of a disposition effect for both on-floor professional futures traders (“locals”) and a matched sample of non-local traders. After controlling for potential differences in trader characteristics, comparisons reveal a stronger disposition effect among locals than non-local traders. Given that locals must trade profitably to survive, it is improbable that they are more irrational in their loss riding than non-locals. To the contrary, evidence is provided that paper losses for local traders are more likely than for non-locals to become either realized or paper gains by the time of the next transaction. This result is consistent with the hypothesis that locals, by their presence on the trading floor, have privileged albeit short-lived information on order flow that allows them to form relatively accurate probability predictions of the direction and strength of short-term market price shifts.

This paper examines the propensity of futures traders to realize profitable positions, but “ride” equivalent losing positions. Shefrin and Statman (1985) describe this asymmetry, observed among investors in mutual funds, as the “disposition effect”.1 Based on the seminal work of Kahneman and Tversky (1979), the disposition effect is explained using a “prospect theory” of investment under uncertainty. Prospect theory assumes that the utility (psychological “value”) function of investors is defined with respect not simply to levels of wealth but to gains and losses relative to some cognitively determined starting point (e.g. a pre-existing market value). Importantly, this function is concave and relatively flat in gains (consistent with risk aversion), and convex as well as relatively steep in losses (consistent with risk seeking). It follows that investors achieve greater psychological “value” from the recovery of a dollar lost than from an added dollar of gain, and thus have more to achieve psychologically by holding losses than gains. The effect is sometimes known as “loss aversion”, meaning an aversion not to losses per se but to their realization. Odean (1998) found strong evidence of a disposition effect in the transactions of a vast group of share traders operating through a discount brokerage firm. He compared the frequencies with which gain and loss opportunities are realized by traders, and observed significantly higher rates of realization of gains than losses. Two previous studies have examined the disposition effect in a futures market setting. Heisler (1994) examines the disposition effect amongst a group of small off-floor traders in Treasury Bond futures listed on the Chicago Mercantile Exchange. This study finds that the average round trip trade is significantly longer in time for positions that show an initial loss than for those showing an initial paper gain, and that the magnitude of the disposition effect is negatively related to the success (profit per trade) of traders. Based on these observations, it is concluded that traders exhibit irrational loss aversion. In a more recent study, Locke and Mann (2000) examined the disposition effect for a sample of floor traders trading for their own account in Deutsche Mark, Swiss Franc, Live Cattle and Pork Belly futures contracts traded on the Chicago Mercantile Exchange, whom they describe as professional traders. Similarly to Heisler (1994), traders are observed to hold losing positions longer than winning positions, and the strength of this effect is negatively related to trader success. The implication is that even professional traders are subject to irrational loss aversion. Neither Heisler (1994) nor Locke and Mann (2000) compared the behavior of professional floor traders against small off-floor traders, and thus no evidence is provided of whether one group of traders is more or less prone to the disposition effect. Our study makes this comparison and tests the extent to which loss riding by professional traders is explained by their informational advantages relative to off-floor traders. Odean (1998) identified a number of plausible rational explanations for the disposition effect. First, the disposition effect is consistent with investors selling winners in order to rebalance their portfolios and restore diversification. Second, fixed transaction costs imply that the percentage cost of selling securities that increase in value is smaller than the cost of selling securities that decrease in value, and investors may simply refrain from selling losers in order to avoid higher fractional trading costs. Third, investors may “ride” their gains while realizing losses in order to maximize the value of the tax benefit of losses and avoid or minimize the tax payable on capital gains. This tax loss hypothesis implies that the propensity to ride losses and realize gains is related to the time of the year. Before evidence of the disposition effect can be interpreted as indicative of the irrationality of traders, possible rational explanations of a tendency to sell gains before losses must be excluded. In this regard, futures markets provide an ideal experimental setting. More specifically, the intraday trading behavior of local traders in futures markets (herein “locals”)2 is unlikely to be influenced by portfolio rebalancing, transaction costs or tax loss selling for a number of reasons. First, by nature, locals typically trade exclusively in one security. Hence, they do not hold a diversified portfolio, and consequently are unlikely to be motivated to trade in order to rebalance their portfolios. Second, the cost of trading in futures markets is relatively trivial. For example, Fleming et al. (1996) note that the cost of trading stock index futures is 3% of the cost of trading an equivalent position in underlying equities.3 Finally, since almost all trading activity in futures is in the nearest-to-maturity contract on a quarterly expiration cycle, most positions in futures contracts are realized or expire before the end of a financial year.4 Moreover, futures trades by locals are typically on a very short cycle and are almost always closed out before the end of trade each day (Kuserke and Locke, 1993; Manaster and Mann, 1996). Consequently, apart from perhaps those relatively few trades in the days near the end of a tax year, tax motivations do not have the influence on futures traders that they have in longer cycle equities trading. Excluding the three possible rationalizations above, in this study we propose a further rational explanation for the disposition effect in futures markets exhibited by local traders. While local traders are unlikely to be directly motivated by portfolio rebalancing, transaction costs or tax motivations in their trading, they are likely to be better informed than non-local traders who are not located on the trading floor. Silber (1984) notes that locals may obtain short-lived information about incoming order flow and short-term price movements because of their presence on the trading floor. In contrast, other (off-floor) traders must wait for the price reporting procedures of an exchange to deliver information on market conditions, inevitably with a time lag. We conjecture that while locals are advantaged relative to other traders, they receive only incomplete signals about futures price movements. Consequently, while they are able to forecast extremely short-term price movements with some success they are not able to forecast the instantaneous price trajectory. This immediate price change following the acquisition of a position by a local may not be in the direction anticipated (it may be influenced by something as transitory as bid–ask bounce). As a result, a local who takes a position in a futures contract faces two immediate outcomes. The price may initially move in the direction of the anticipated move, which will generally be seen as sufficient reason to realize a (profitable) position. Alternately, the price may initially move in a direction opposite to that anticipated. Since a local trader’s expectations are based on acutely relevant information regarding order flow, her subjective probability of an anticipated price shift may remain sufficiently high to warrant leaving her position open for at least one more trade. The local may tend therefore to “ride out” any instantaneous loss, waiting on a foreseen order sequence and consequent price shift. Such behavior is consistent with the disposition effect (a tendency to ride losses), but is motivated at least partially by short-term informed trading rather than by an irrational psychological aversion to realizing losses.