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Daily income target effects: Evidence from a large sample of professional commodities traders

  • Locke, Peter R.
  • Mann, Steven C.

We provide evidence of rational reference-dependent preferences in the proprietary trading of professional traders. We find increased trading effort and risk taking by traders following morning losses. Further analysis provides no evidence of a deterioration in trading performance subsequent to losses, as neither risk-adjusted performance nor trade execution appear to be negatively affected by prior losses. The evidence supports the existence of rational reference-dependent preferences in the form of trader daily income targets: these professional traders exhibit increased work effort subsequent to abnormal morning losses. The evidence is inconsistent with the alternative explanation of costly loss aversion.

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Article provided by Elsevier in its journal Journal of Financial Markets.

Volume (Year): 12 (2009)
Issue (Month): 4 (November)
Pages: 814-831

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Handle: RePEc:eee:finmar:v:12:y:2009:i:4:p:814-831
Contact details of provider: Web page: http://www.elsevier.com/locate/finmar

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  1. Koszegi, Botond & Rabin, Matthew, 2004. "A Model of Reference-Dependent Preferences," Department of Economics, Working Paper Series qt0w82b6nm, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
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