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Real-time extended psychophysiological analysis of financial risk processing

Author

Listed:
  • Manish Singh
  • Qingyang Xu
  • Sarah J Wang
  • Tinah Hong
  • Mohammad M Ghassemi
  • Andrew W Lo

Abstract

We study the relationships between the real-time psychophysiological activity of professional traders, their financial transactions, and market fluctuations. We collected multiple physiological signals such as heart rate, blood volume pulse, and electrodermal activity of 55 traders at a leading global financial institution during their normal working hours over a five-day period. Using their physiological measurements, we implemented a novel metric of trader’s “psychophysiological activation” to capture affect such as excitement, stress and irritation. We find statistically significant relations between traders’ psychophysiological activation levels and such as their financial transactions, market fluctuations, the type of financial products they traded, and their trading experience. We conducted post-measurement interviews with traders who participated in this study to obtain additional insights in the key factors driving their psychophysiological activation during financial risk processing. Our work illustrates that psychophysiological activation plays a prominent role in financial risk processing for professional traders.

Suggested Citation

  • Manish Singh & Qingyang Xu & Sarah J Wang & Tinah Hong & Mohammad M Ghassemi & Andrew W Lo, 2022. "Real-time extended psychophysiological analysis of financial risk processing," PLOS ONE, Public Library of Science, vol. 17(7), pages 1-15, July.
    • Handle: RePEc:plo:pone00:0269752
    DOI: 10.1371/journal.pone.0269752
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    References listed on IDEAS

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    1. Caroline J. Charpentier & Jan-Emmanuel De Neve & Jonathan P. Roiser & Tali Sharot, 2016. "Models of affective decision-making: how do feelings predict choice?," CEP Discussion Papers dp1408, Centre for Economic Performance, LSE.
    2. Andrew W. Lo & Dmitry V. Repin & Brett N. Steenbarger, 2005. "Fear and Greed in Financial Markets: A Clinical Study of Day-Traders," American Economic Review, American Economic Association, vol. 95(2), pages 352-359, May.
    3. Charpentier, Caroline J. & Neve, Jan-Emmanuel De & Roiser, Jonathan P. & Sharot, Tali, 2016. "Models of affective decision-making: how do feelings predict choice?," LSE Research Online Documents on Economics 66420, London School of Economics and Political Science, LSE Library.
    4. Alex Edmans & Diego García & Øyvind Norli, 2007. "Sports Sentiment and Stock Returns," Journal of Finance, American Finance Association, vol. 62(4), pages 1967-1998, August.
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