TY - JOUR
T1 - Trading behavior of retail investors in derivatives markets
T2 - Evidence from Mini options
AU - Li, Yubin
AU - Zhao, Chen
AU - Zhong, Zhaodong (Ken) K.
N1 - Funding Information:
Li acknowledges financial support from the Shenzhen Key Research Base of Humanities and Social Sciences (Grant No. KP191003) and Shenzhen Peacock Talents Start-up Fund. Zhao acknowledges financial support from School of Accounting of Southwestern University of Finance and Economics. Zhong acknowledges financial support from the David Whitcomb Center for Research in Financial Services at Rutgers Business School. We are grateful for comments from the two anonymous referees, Vikas Agarwal, Charles Cao, Saeyoung Chang, Mi-Hsiu Chiang, Daniel Chi, Suengmook (Sam) Choi, Robin K. Chou, Grigori Erenburg, Bing Han, Cheng-Few Lee, Oded Palmon, Charles Trzcinka, Ronald Sverdlove, Yangru Wu, Liyan Yang, and conference participants at the 7th International Conference on Financial Risk and Corporate Finance Management (FRCFM), the 26th Annual Conference on Financial Economics and Accounting (CFEA), 2016 FMA Asia Pacific Conference, 2016 FMA Annual Meeting, and 2017 Research Day at Rutgers Business School, 2017 FMA European Conference, and 2017 Journal of Accounting Auditing and Finance Annual Conference. All remaining errors are ours.
Funding Information:
Li acknowledges financial support from the Shenzhen Key Research Base of Humanities and Social Sciences (Grant No. KP191003) and Shenzhen Peacock Talents Start-up Fund. Zhao acknowledges financial support from School of Accounting of Southwestern University of Finance and Economics. Zhong acknowledges financial support from the David Whitcomb Center for Research in Financial Services at Rutgers Business School. We are grateful for comments from the two anonymous referees, Vikas Agarwal, Charles Cao, Saeyoung Chang, Mi-Hsiu Chiang, Daniel Chi, Suengmook (Sam) Choi, Robin K. Chou, Grigori Erenburg, Bing Han, Cheng-Few Lee, Oded Palmon, Charles Trzcinka, Ronald Sverdlove, Yangru Wu, Liyan Yang, and conference participants at the 7th International Conference on Financial Risk and Corporate Finance Management (FRCFM), the 26th Annual Conference on Financial Economics and Accounting (CFEA), 2016 FMA Asia Pacific Conference, 2016 FMA Annual Meeting, and 2017 Research Day at Rutgers Business School, 2017 FMA European Conference, and 2017 Journal of Accounting Auditing and Finance Annual Conference. All remaining errors are ours.
Publisher Copyright:
© 2021 Elsevier B.V.
PY - 2021/12
Y1 - 2021/12
N2 - 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.
AB - 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.
KW - Limited attention
KW - Options
KW - Retail investors
KW - Sentiment
KW - Trading behavior
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U2 - 10.1016/j.jbankfin.2021.106250
DO - 10.1016/j.jbankfin.2021.106250
M3 - Article
AN - SCOPUS:85111543510
SN - 0378-4266
VL - 133
JO - Journal of Banking and Finance
JF - Journal of Banking and Finance
M1 - 106250
ER -