NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Psychophysiology of Real-Time Financial Risk Processing

Andrew W. Lo, Dmitry V. Repin

NBER Working Paper No. 8508
Issued in October 2001
NBER Program(s):   AP

A longstanding controversy in economics and finance is whether financial markets are governed by rational forces or by emotional responses. We study the importance of emotion in the decisionmaking process of professional securities traders by measuring their physiological characteristics, e.g., skin conductance, blood volume pulse, etc., during live trading sessions while simultaneously capturing real-time prices from which market events can be defined. In a sample of 10 traders, we find significant correlation between electrodermal responses and transient market events, and between changes in cardiovascular variables and market volatility. We also observe differences in these correlations among the 10 traders which may be systematically related to the traders' levels of experience.

download in pdf format
   (1375 K)

email paper

A non-technical summary of this paper is available in the March 2002 NBER digest.  You can sign up to receive the NBER Digest by email.

This paper is available as PDF (1375 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w8508

Published: Lo, Andrew W. and Dmitry V. Repin. "The Psychophysiology of Real-Time Financial Risk Processing." Journal of Cognitive Neuroscience 14, 3 (April 1, 2002): 323-339.

Users who downloaded this paper also downloaded these:
Lo, Repin, and Steenbarger w11243 Fear and Greed in Financial Markets: A Clinical Study of Day-Traders
Golec and Vernon w13604 Financial Risk in the Biotechnology Industry
Andersen, Bollerslev, Diebold, and Vega w11312 Real-Time Price Discovery in Stock, Bond and Foreign Exchange Markets
Andersen, Bollerslev, Christoffersen, and Diebold w18084 Financial Risk Measurement for Financial Risk Management
Billio, Getmansky, Lo, and Pelizzon w16223 Econometric Measures of Systemic Risk in the Finance and Insurance Sectors
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us