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TradersRisks, Decisions, and Management in Financial Markets$
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Mark Fenton-O'Creevy, Nigel Nicholson, Emma Soane, and Paul Willman

Print publication date: 2004

Print ISBN-13: 9780199269488

Published to Oxford Scholarship Online: October 2011

DOI: 10.1093/acprof:oso/9780199269488.001.0001

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PRINTED FROM OXFORD SCHOLARSHIP ONLINE (oxford.universitypressscholarship.com). (c) Copyright Oxford University Press, 2020. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in OSO for personal use. date: 25 November 2020

Managing Traders

Managing Traders

Chapter:
(p.178) Chapter 8 Managing Traders
Source:
Traders
Author(s):

Mark Fenton-O'Creevy

Nigel Nicholson

Emma Soane

Paul Willman

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780199269488.003.0008

In analysing the behaviour of traders in financial markets, one would observe that the reliance of traders on high bonus payments slows down the accumulation of profits in the investment-banking sector and may expose how firms employ traders at high levels of operational risk. The other aspect concerns how publicity surrounding the concealment of losses has resulted in regulatory intervention and public concern about malfeasance. However, we know that traders are not supposed to take risks that extreme. This paradox is investigated by looking at how traders are managed. There is a regulatory concern with management's attitude towards risk and controls as a part of a broader risk-based approach in assessing firms' behaviour. The chapter will look into relevant theory, present data, and assess the implications of these data in order to address the main concern regarding the effect of loss aversion rather than profit accumulation.

Keywords:   operational risk, profit accumulation, loss aversion, regulatory intervention, bonuses

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