Expert and less experienced financial traders show different physiological responses to market events and market volatility, according to new research by The Open University.
The researchers concluded that learning to regulate emotions effectively is an important facet of a trader’s expertise. They argue that effective management of emotions for traders is not a question of removing all emotion, but rather recognising emotions as they occur and learning that emotions may carry valuable information. Traders identify important cues and develop effective strategies to avoid being overwhelmed by emotional reactions.
Mark Fenton-O’Creevy, Professor of Organisational Behaviour at The Open University Business School, led the study to show how financial traders make decisions and develop learning tools to help them to regulate their emotions.
Using heart rate data to monitor emotional reactions to market events, the researchers found that traders working in volatile markets have difficulty regulating their emotions and that traders with more expertise have more effective ways of regulating their emotions.
“Evidence is building that the work of professional traders is intensely emotional and that these emotions have important effects on their decisions and behaviour,” said Professor Fenton-O’Creevy. “In our paper, we argue that emotion regulation may be an important facet of trader expertise and that learning to regulate emotions effectively is an important aspect of traders’ skill development.”
The researchers made it clear that effective emotion regulation is not the same as suppressing emotions.
The team studied 28 traders with experience ranging from one month to 25 years over multiple trading days in two European investment banks, one based in London and the other in Copenhagen. Each trader was equipped with an ECG sensor to capture heart-beat information, which was worn throughout the trading day including over the course of releases of important market information and during periods of significant market turbulence.
This research is part of the EU-funded €3.2m xDelia project (www.xdelia.org), a collaboration between The Open University, Saxo Bank (Denmark), Erasmus Research Institute of Management (Netherlands), Blekinge Tekniska Högskola (Sweden), The International Centre for Numerical Methods in Engineering (Spain); The Forschungszentrum Informatik (Germany) and Bristol University.
The findings will be presented at the NeuroPsychoEconomics Conference in Rotterdam this week (15 June 2012).
The Open University Business School is one of a select group of schools worldwide accredited by the three leading international accrediting bodies – AACSB, AMBA, EQUIS. It is the only triple-accredited business school that specialises in flexible learning and is home to 22,300 successful MBAs. Its MBA programme offers residential schools and face-to-face and collaborative learning options.
The Open University Business School is also home to the Open University Law School offering amongst its programmes an LLB (Hons) – a qualifying law degree in England and Wales- in collaboration with The College of Law and a master’s degree in law (LLM). It is also one of the top three UK universities for student satisfaction.