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Trading behavior of retail investors in derivatives markets: Evidence from Mini options

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Listed:
  • Li, Yubin
  • Zhao, Chen
  • Zhong, Zhaodong (Ken)

Abstract

Mini options are specially catered to retail investors with limited capital for trading options on extremely high-priced securities. The coexistence of both Mini and standard options for the same underlying security provides us a novel setting to investigate whether and how small retail investors use derivatives contracts differently compared to their counterparts. First, we find that the Mini option investors are more subject to constraints of limited attention. Specifically, Mini option investors trade more intensively near market opens, and their trading activities are more heavily influenced by attention-grabbing events and attention-distracting events. Second, we document that Mini option investors’ trading is more likely to be driven by market sentiment than standard option investors. Third, the trading performance of Mini option investors is also worse than that of standard option investors, with less positive intraday returns and more negative overnight returns.

Suggested Citation

  • Li, Yubin & Zhao, Chen & Zhong, Zhaodong (Ken), 2021. "Trading behavior of retail investors in derivatives markets: Evidence from Mini options," Journal of Banking & Finance, Elsevier, vol. 133(C).
    • Handle: RePEc:eee:jbfina:v:133:y:2021:i:c:s0378426621002090
    DOI: 10.1016/j.jbankfin.2021.106250
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    Cited by:

    1. Wu, Xiang & Zhang, Bing, 2024. "Retail investors’ escaping from the bottom and clustering at the top of the trend in China," International Review of Economics & Finance, Elsevier, vol. 93(PB), pages 875-904.

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    More about this item

    Keywords

    Options; Retail investors; Trading behavior; Limited attention; Sentiment;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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