Fear and Greed in Financial Markets: A Clinical Study of Day-Traders
Andrew W. Lo, Dmitry V. Repin, Brett N. Steenbarger
NBER Working Paper No. 11243
We investigate several possible links between psychological factors and trading performance in a sample of 80 anonymous day-traders. Using daily emotional-state surveys over a five-week period as well as personality inventory surveys, we construct measures of personality traits and emotional states for each subject and correlate these measures with daily normalized profits-and-losses records. We find that subjects whose emotional reaction to monetary gains and losses was more intense on both the positive and negative side exhibited significantly worse trading performance. Psychological traits derived from a standardized personality inventory survey do not reveal any specific "trader personality profile", raising the possibility that trading skills may not necessarily be innate, and that different personality types may be able to perform trading functions equally well after proper instruction and practice.
Published: Lo, Andrew W., Dimitry V. Repin and Brett N. Steenbarger. "Fear And Greed In Financial Markets: A Clinical Study Of Day-Traders," American Economic Review, 2005, v95(2,May), 352-359.