Abstract
In this paper, we conduct a quantitative, qualitative and neuro-economic experiment investigating the effects of risk-preferences and emotions on investors’ trading strategies and performance. The focus of our experiment is a computerised simulated trading game, where investors decide, on a tick-by-tick basis, how much of their wealth to allocate to risk-free cash and/or risky shares (in each period, they can buy or sell shares, or hold their position). Overall, the trading game represents a bear market. Our results demonstrate that risk-aversion and emotions may be detrimental to trading performance in a bear market, and that an optimal level of each may exist.
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