We study the role of stress induced by time constraints on investor decision making in real financial markets. We use unexpected traffic congestion as a stress trigger. Our dependent variable is the slope of the implied volatility function (IVF) of options on Russian Trading System Index (RTSI) futures at the left-hand side of the volatility smile (cf. Bollen and Whaley, 2004). Controlling for relevant factors, we find that this slope at the opening of the main trading session is higher subsequent to morning traffic jams, suggesting that investors under stress assign higher weights to extreme loss scenarios. This effect is economically exploitable before transaction costs.
Bibliographical notePublisher Copyright:
- Behavioral finance
- Implied volatility function
- Weighting of extreme scenarios
ASJC Scopus subject areas
- Economics and Econometrics
- Organizational Behavior and Human Resource Management