The house money and break-even effects for different types of traders: Evidence from Taiwan futures markets

• The morning outcomes nonlinearly affect afternoon risk taking for all trader types.
• Individuals exhibit both the house money effect and break-even effect.
• Futures proprietary firms exhibit a break-even effect after large morning losses.
• Foreign institutions exhibit a house money effect after they experience small gains.
• Only individuals' risk-seeking behaviors impact both market volatility and liquidity.

Using a set of transaction records from the Taiwan Futures Exchange, we examine risk-taking behavior subject to prior outcomes and study the house money and break-even effects across various trader types. The empirical results show that the degree of morning gains/losses nonlinearly influences afternoon risk taking for all trader types, but the pattern is different for each type. Active individuals exhibit a house money effect after experiencing large gains and exhibit a break-even effect after large and small losses. Futures proprietary firms exhibit a break-even effect only after experiencing large morning losses. By contrast, foreign institutions exhibit only a house money effect after they experience small gains. The additional risk-seeking behaviors of futures proprietary firms and foreign institutions do not have a significant influence on market volatility or liquidity; only active individuals' risk-seeking behaviors when facing large morning losses impact both market volatility and liquidity.