The effect of time-induced stress on financial decision making in real markets: The case of traffic congestion

Sergey Gelman; Doron Kliger

doi:10.1016/j.jebo.2020.10.022

The effect of time-induced stress on financial decision making in real markets: The case of traffic congestion

Sergey Gelman
, Doron Kliger

Department of Economics

Research output: Contribution to journal › Article › peer-review

Abstract

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.

Original language	English
Pages (from-to)	814-841
Number of pages	28
Journal	Journal of Economic Behavior and Organization
Volume	185
DOIs	https://doi.org/10.1016/j.jebo.2020.10.022
State	Published - May 2021

Bibliographical note

Publisher Copyright:
© 2020

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

SDG 11 Sustainable Cities and Communities

Keywords

Behavioral finance
GIS
Implied volatility function
Weighting of extreme scenarios

ASJC Scopus subject areas

Economics and Econometrics
Organizational Behavior and Human Resource Management

Access to Document

10.1016/j.jebo.2020.10.022

Cite this

@article{13e1bf6d598b487d85b43dde9a7fb39e,

title = "The effect of time-induced stress on financial decision making in real markets: The case of traffic congestion",

abstract = "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.",

keywords = "Behavioral finance, GIS, Implied volatility function, Weighting of extreme scenarios",

author = "Sergey Gelman and Doron Kliger",

note = "Publisher Copyright: {\textcopyright} 2020",

year = "2021",

month = may,

doi = "10.1016/j.jebo.2020.10.022",

language = "English",

volume = "185",

pages = "814--841",

journal = "Journal of Economic Behavior and Organization",

issn = "0167-2681",

publisher = "Elsevier",

}

TY - JOUR

T1 - The effect of time-induced stress on financial decision making in real markets

T2 - The case of traffic congestion

AU - Gelman, Sergey

AU - Kliger, Doron

PY - 2021/5

Y1 - 2021/5

N2 - 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.

AB - 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.

KW - Behavioral finance

KW - GIS

KW - Implied volatility function

KW - Weighting of extreme scenarios

UR - https://www.scopus.com/pages/publications/85096000966

U2 - 10.1016/j.jebo.2020.10.022

DO - 10.1016/j.jebo.2020.10.022

M3 - Article

AN - SCOPUS:85096000966

SN - 0167-2681

VL - 185

SP - 814

EP - 841

JO - Journal of Economic Behavior and Organization

JF - Journal of Economic Behavior and Organization

ER -

The effect of time-induced stress on financial decision making in real markets: The case of traffic congestion

Abstract

Bibliographical note

UN SDGs

Keywords

ASJC Scopus subject areas

Access to Document

Other files and links

Fingerprint

Cite this