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Option trading and individual investor performance

Author

Listed:
  • Bauer, Rob
  • Cosemans, Mathijs
  • Eichholtz, Piet

Abstract

This paper examines the impact of option trading on individual investor performance. The results show that most investors incur substantial losses on their option investments, which are much larger than the losses from equity trading. We attribute the detrimental impact of option trading on investor performance to poor market timing that results from overreaction to past stock market returns. High trading costs further contribute to the poor returns on option investments. Gambling and entertainment appear to be the most important motivations for trading options while hedging motives only play a minor role. We also provide strong evidence of performance persistence among option traders.

Suggested Citation

  • Bauer, Rob & Cosemans, Mathijs & Eichholtz, Piet, 2009. "Option trading and individual investor performance," Journal of Banking & Finance, Elsevier, vol. 33(4), pages 731-746, April.
    • Handle: RePEc:eee:jbfina:v:33:y:2009:i:4:p:731-746
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