A new study in behavioural finance shows that being hungry makes traders more likely to take bigger trading risks.From CNBC:
The participants were asked to select between pairs of choices, including one that had both a higher risk and higher chance of return. They made the decisions after a 14-hour fast; immediately after eating a 2,000-calorie meal; or one hour after a 2,000-calorie same meal.
The study found risk aversion to be at its highest immediately after consuming the big meal.
So maybe some enterprising quant youths could create out a formula that takes advatage of the volatility during the time of day when people are usually most hungry (the exact time is not easily google-able, but we estimate it’s ~ 3 pm)? That might be fun, and who knows, it might pay off.
One hedge fund took or takes the hunger-risk factor seriously enough – the managers practically force its traders to eat lunch every day.
Nicholas Colas, chief strategist at BNY ConvergEx Group, said:
“When I worked at a large (Connecticut)-based hedge fund a few years ago, I always wondered why the company kitchen was so well stocked with chips, sodas and other snacks. At my next trading gig, the company founder insisted on having lunch, as a group, every day at exactly noon,” Colas wrote Monday in an analysis.
“Whether they knew it or not, both fund managers knew that staying well fed is actually a risk management tool, at least if the BPS study is any guide. Hungry traders are, well, riskier traders.”