We hypothesize that individual investors treat trading as a fun and exciting gambling activity, implying substitution between this activity and alternative gambling opportunities. To examine this hypothesis, we study the lottery jackpots and the trading of individual investors in Taiwan. When the jackpots exceed 500 million Taiwan dollars, the trading volume decreases between 5.2% and 9.1% among stocks preferred by individual investors and between 6.8% and 8.6% among lottery-like stocks. The decline in individual buy volume is statistically indistinct from the decline in sell volume. Large jackpots are associated with less trading in options with high sensitivity to volatility.

Abstract We find that put options trading volume and bid-ask spreads both increase with equity lending fees. However, we also find that put options trading volume decreases with lending fees for banned stocks during the 2008 Short-Sale Ban period, when only options market makers could short. By separating the speculative demand of short sellers from the hedging demand of options market makers in the lending market, our results provide a thorough analysis of the interaction between the options market and the equity lending market. We also shed light on the substitutability/complementarity between put options volume and short interest shown in the literature.

We hypothesize that cognitive limitation may be manifested in a disproportionately large volume of limit orders submitted at round-number prices if investors use these numbers as cognitive shortcuts. Using detailed limit order data in the Taiwan Futures Exchange, we find that investors with lower cognitive abilities, defined as higher limit order submission ratios at round numbers, suffer greater losses in their round-numbered and non-round-numbered limit orders, market orders, and round-trip trades. The positive correlation between cognitive ability and investment performance is monotonic and robust across futures and options markets. In addition, past trading experience helps mitigate cognitive limitation.

We study the role of analysts and options traders in the information transmission between options and stock markets. We first show that the predictive power of option implied volatilities (IVs) on stock returns more than doubles around analyst-related events, indicating that a significant proportion of the options predictability on stock returns comes from informed options traders’ information about upcoming analyst-related news. We examine three explanations for this finding: tipping, reverse tipping and common information. We find that analyst tipping to options traders is the most consistent explanation of these predictive patterns.

A specific day-trading policy in Taiwan futures market allows an investigation of the performance of day traders. Since October 2007, investors who characterize themselves as “day traders” by closing their day-trade positions on the same day enjoy a 50% reduction in the initial margin. Because we can identify day traders ex ante, we have a laboratory to explore trading behavior without the contamination of potential behavioral biases. Our results show that the 3470 individual day traders in the sample incur on average a significant loss of 61,500 (26,700) New Taiwan dollars after (before) transaction costs over October 2007–September 2008. This implies that day traders are not only overconfident about the accuracy of their information but also biased in their interpretations of information. We also find that excessive trading is hazardous only to the overconfident losers, but not to the winners. Last, we provide evidence that more experienced individual investors exhibit more aggressive day trading behavior, although they do not learn their types or gain superior trading skills that could mitigate their losses.

We document several gender differences in reward-based crowdfunding by analyzing a large sample of Kickstarter campaigns. We argue that these differences are most plausibly explained by male entrepreneurs’ relative over-optimism. Suggesting a tendency to overestimate the demand for their products, we find that male entrepreneurs set higher goal amounts, resulting in more frequent campaign failures. In successive campaigns, male entrepreneurs’ goal amounts and success rates converge toward those of female entrepreneurs, consistent with entrepreneurial experience mitigating the behavioral bias. Our findings suggest that entrepreneurs learn from experience, and that female first-time entrepreneurs may have more realistic expectations of the demand for their products, increasing their success rates in crowdfunding. Moreover, although serial entrepreneurs exhibit better performance already in their first campaigns, they still improve over successive campaigns, further highlighting the importance of entrepreneurial learning.

Abstract We find a robust negative relation between skewness/lottery-like features, proxied by maximum return (MAX) over the last month, and future returns for stocks preferred by individual investors. This negative relation is nonexistent for the rest of stocks. We identify stocks preferred by individual investors through bundling ten stock characteristics associated with their stock preferences. The negative relation between MAX and future return is produced by the stocks preferred by individuals that account for less than 5% of the overall market capitalization. Our results are robust to alternative definitions of MAX and lottery-like features such as total, idiosyncratic, and expected skewness.

We document a novel pattern that campaign goal amounts set by entrepreneurs on Kickstarter exhibit clear clustering at round numbers. We propose that the round number heuristic, a tendency to adopt round numbers as cognitive shortcuts when facing complicated and uncertain situations, may explain the clustering pattern and predict campaign outcomes. Based on 162,863 campaigns between 2009 and 2017, we find a negative relation between the use of round goal amounts and the likelihood of campaign success. Our findings suggest that setting a round number goal conveys useful information about entrepreneur quality that could be used by campaign backers or platforms.

Abstract Stock returns during the week are negatively associated with the reported incidence of domestic violence during the weekend. This relationship is primarily driven by negative returns. The incidence of domestic violence increases with the magnitude of losses, and the effect increases with local stock market participation. Our findings suggest that negative wealth shocks caused by stock market crashes can affect stress levels within intimate relationships, escalate arguments, and trigger domestic violence. Stock market losses may reduce household utility beyond the shock to financial wealth, supporting gain-loss models where disutility from losses outweighs the utility from gains of a similar magnitude. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

We hypothesize that individual investors treat trading as a fun and exciting gambling activity, implying substitution between this activity and alternative gambling opportunities. To examine this hypothesis, we study the lottery jackpots and the trading of individual investors in Taiwan. When the jackpots exceed 500 million Taiwan dollars, the trading volume decreases between 5.2% and 9.1% among stocks preferred by individual investors and between 6.8% and 8.6% among lottery-like stocks. The decline in individual buy volume is statistically indistinct from the decline in sell volume. Large jackpots are associated with less trading in options with high sensitivity to volatility.