Essays on Futures Trading Under Non-Standard Assumptions
Mattos, Fabio Lanhoso
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https://hdl.handle.net/2142/83007
Description
Title
Essays on Futures Trading Under Non-Standard Assumptions
Author(s)
Mattos, Fabio Lanhoso
Issue Date
2008
Doctoral Committee Chair(s)
Garcia, Philip
Department of Study
Agricultural and Consumer Economics
Discipline
Agricultural and Consumer Economics
Degree Granting Institution
University of Illinois at Urbana-Champaign
Degree Name
Ph.D.
Degree Level
Dissertation
Keyword(s)
Economics, Finance
Language
eng
Abstract
The objective of this dissertation is to investigate more realistic decision-making models and contrast them to the standard utility model in futures markets. Specifically the rationality assumption is relaxed and more reasonable assumptions about agents' decision context are considered in three studies on the behavior of hedgers and traders. Hedging behavior in futures market is investigated by relaxing assumptions related to both expected utility theory and the hedger's decision context, allowing more realistic estimates of hedge ratios. Further, for the first time the behavior of futures and options traders is explored using experiments combined with field data from individual trading records. A general finding of the dissertation is that outcomes from decision-making models based on prospect theory and more realistic assumptions about agents' decision context differ substantially from those produced by expected utility models. Further, outcomes are more consistent with observed behavior. Overall, the research offers new insights on what drives specific dimensions of behavior and how they affect trading performance in futures and options markets.
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