| Traditional framework of modern finance is firmly based on the assumption of economic agent. Literatures find, however, investors in real world are far from economic agents because they are opt for holding undiversified portfolio and overtrading. The gap between reality and theory leads to a new research area, i.e. behavioral finance. Integrating insights from psychology with neo-classical financial theory, behavioral finance focuses on individual behavior as well as the reasons and motivations for that behavior.Survey and behavioral experiment are used to be the popular tools for the research of behavioral finance. It is no doubt that above research tools helped and are helping us discover the characteristics of individual investors, but the limitation of those tools are also apparent. Comparatively, actual trading records of investors are superior since they reflect the true motivations and choices when investors are facing to changeable market.Following Odean (1998), in this essay, we take advantage of the complete trading records of8742investors on Chinese futures market from2007to2012to study the trading pattern and behavioral bias of individual investors. In the first part, we systematically review behavioral finance literatures, especially those using actual trading records of investors. In the second part, we discuss some relevant parts of the microstructure of futures market of China. In the third part, we formally introduce the data used in this research through descriptive statistics and then we identify the basic characteristics of investors and futures contract in our sample. In the fourth part, we study the disposition effect of futures traders and further investigate the impact factors and welfare effect of disposition effect. In the fifth part, we turn into the narrow framing effect. We also discuss about what factors can affect the narrow framing of investors and the casual relationship between narrow framing and disposition effect. The last part concludes this essay and advocates some suggestions concerning investors protection. The main findings and contributions of this essay are the following fourfold:First, this essay is the first tempt to use actual trading records to study the characteristics and behavioral bias of individual investors of Chinese futures market. The brand new data used in this essay help us tackle the potential measurement errors caused by the traditional proxies of individual investors behaviors.Second, we are the first to systematically investigate the characteristics of futures traders in China. In this market,97%investors are individual investors, whose average age is38years old and they can only survive in this market for one year eight months, which highlights how risky the futures market is. Moreover, we find some evidences for the existence of high frequency traders and voluntary scalpers. Besides the characteristics of traders, this essay further investigates the characteristics of contract holdings. We find the difference on contract turnover among different types of futures contracts. On average, the turnover of financial futures is higher than that of industrial futures and the turnover of industrial futures is higher than that of agricultural futures.Third, we are the first to report the disposition effect on Chinese futures market. The disposition effect widely exist on Chinese futures market and the extent is about half of that on Chinese stock market. Traders experiences can alleviate disposition effect but this effect still makes investors loss money. In a sum, disposition effect is a kind of behavioral bias of investors.Fourth, we are also the first to report the narrow framing effect in China. This effect can also be weakened by traders experiences. What the most important is that we find narrow framing is the source of disposition effect, which is helpful for us to take further step to alleviate the negative effect of disposition effect. |
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