Which Professional Traders Win?

What is the critical success factor for experienced traders? In their December 2022 paper entitled “Strategic Sophistication and Trading Profits: An Experiment with Professional Traders”, Marco Angrisani, Marco Cipriani and Antonio Guarino compare results from a competitive trading game, a competitive guessing game and individual cognitive/risk preference/personality tests to determine what characteristics most strongly relate to trading success. They recruit two groups for testing: (1) professional traders and portfolio managers working in London financial markets; and, (2) as a control, a gender-matched (mostly male), multi-disciplinary group of undergraduate students with little or no experience trading real markets. For each group, they conduct:

1. A competitive group trading game wherein participants trade an asset that earns dividends over multiple periods in a continuous double auction. Profits derive from both dividends accrued (fundamental value) and any capital gain (ability to outwit other players by buying low and selling high).
2. A competitive group guessing game wherein each participant chooses a number from 0 to 100 with the goal of guessing the number is closest to two thirds of the average choice. Choices reveal how deeply participants reflect on the thinking of others.
3. An individual guessing game (to disentangle reasons for group guessing game outcomes), two tests of cognitive ability (intelligence), tests to elicit risk preferences/confidence and personality traits.

Using game/test results for 56 professional traders and 56 undergraduate students, they find that: (more…)