Option Trading and Individual Investor Performance

R.M.M.J. Bauer, M.M.J.E. Cosemans, P.M.A. Eichholtz

Research output: Contribution to journalArticleAcademicpeer-review

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.
Original languageEnglish
Pages (from-to)731-746
Number of pages16
JournalJournal of Banking & Finance
Volume33
Issue number4
DOIs
Publication statusPublished - 1 Jan 2009

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