Does the Disposition Effect Justify the Options Traders’ Irrationality?
The options trader’s decisions are expected to be rational decisions but an element of irrationality is observed in decision making. The Disposition effect is the behavioral aspect of an investor which explains his irrational decision-making. The disposition effect is the tendency to keep losing pos...
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| Format: | Article |
| Language: | Russian |
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Government of the Russian Federation, Financial University
2024-08-01
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| Series: | Финансы: теория и практика |
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| Online Access: | https://financetp.fa.ru/jour/article/view/2830 |
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| author | V. Choubey P. V. Joshi |
| author_facet | V. Choubey P. V. Joshi |
| author_sort | V. Choubey |
| collection | DOAJ |
| description | The options trader’s decisions are expected to be rational decisions but an element of irrationality is observed in decision making. The Disposition effect is the behavioral aspect of an investor which explains his irrational decision-making. The disposition effect is the tendency to keep losing positions too long and selling winning positions too early. The present research work studies the disposition effect in options trading. Options are derivatives of underlying assets which give the holder the right to exercise them at a given date and price. In this research work, elements of disposition effect namely,Herding (HE), Mental accounting (MA), Risk Aversion (RA) are studied along with Trade enablers (TE) and Cost consciousness (CC). The data was collected from 250 respondents’ trading options on the National Stock Exchange, India. The collected data was analyzed using Structured Equation Modeling (SEM). The results reflected that the disposition effect existed in decision-making by options traders. Trade Enabler consisting of Time decay and Open Interest, and Herding emerged as significant elements of disposition effect for options trading. Mental accounting, risk aversion, and cost-consciousness emerged as less significant elements affecting the disposition effect in options trading. |
| format | Article |
| id | doaj-art-7f9cae537e4d4d07865f87b4cbdaf3f1 |
| institution | DOAJ |
| issn | 2587-5671 2587-7089 |
| language | Russian |
| publishDate | 2024-08-01 |
| publisher | Government of the Russian Federation, Financial University |
| record_format | Article |
| series | Финансы: теория и практика |
| spelling | doaj-art-7f9cae537e4d4d07865f87b4cbdaf3f12025-08-20T03:00:41ZrusGovernment of the Russian Federation, Financial UniversityФинансы: теория и практика2587-56712587-70892024-08-0128461710.26794/2587-5671-2024-28-4-6-171145Does the Disposition Effect Justify the Options Traders’ Irrationality?V. Choubey0P. V. Joshi1Symbiosis Institute of Operations Management; Symbiosis International (Deemed) UniversitySymbiosis Institute of Operations Management; Symbiosis International (Deemed) UniversityThe options trader’s decisions are expected to be rational decisions but an element of irrationality is observed in decision making. The Disposition effect is the behavioral aspect of an investor which explains his irrational decision-making. The disposition effect is the tendency to keep losing positions too long and selling winning positions too early. The present research work studies the disposition effect in options trading. Options are derivatives of underlying assets which give the holder the right to exercise them at a given date and price. In this research work, elements of disposition effect namely,Herding (HE), Mental accounting (MA), Risk Aversion (RA) are studied along with Trade enablers (TE) and Cost consciousness (CC). The data was collected from 250 respondents’ trading options on the National Stock Exchange, India. The collected data was analyzed using Structured Equation Modeling (SEM). The results reflected that the disposition effect existed in decision-making by options traders. Trade Enabler consisting of Time decay and Open Interest, and Herding emerged as significant elements of disposition effect for options trading. Mental accounting, risk aversion, and cost-consciousness emerged as less significant elements affecting the disposition effect in options trading.https://financetp.fa.ru/jour/article/view/2830disposition effectherdingmental accountingrisk aversionbehavioral finance |
| spellingShingle | V. Choubey P. V. Joshi Does the Disposition Effect Justify the Options Traders’ Irrationality? Финансы: теория и практика disposition effect herding mental accounting risk aversion behavioral finance |
| title | Does the Disposition Effect Justify the Options Traders’ Irrationality? |
| title_full | Does the Disposition Effect Justify the Options Traders’ Irrationality? |
| title_fullStr | Does the Disposition Effect Justify the Options Traders’ Irrationality? |
| title_full_unstemmed | Does the Disposition Effect Justify the Options Traders’ Irrationality? |
| title_short | Does the Disposition Effect Justify the Options Traders’ Irrationality? |
| title_sort | does the disposition effect justify the options traders irrationality |
| topic | disposition effect herding mental accounting risk aversion behavioral finance |
| url | https://financetp.fa.ru/jour/article/view/2830 |
| work_keys_str_mv | AT vchoubey doesthedispositioneffectjustifytheoptionstradersirrationality AT pvjoshi doesthedispositioneffectjustifytheoptionstradersirrationality |